SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
1997 FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
Commission file number 1-5471
GLOBAL MARINE INC.
(Exact name of registrant as specified in its charter)
Delaware 95-1849298
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
777 N. Eldridge Parkway, Houston, Texas 77079
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (281)596-5100
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
TITLE OF EACH CLAS ON WHICH REGISTERED
Common Stock, $0.10 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES x NO
___ ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of February 28, 1998, the aggregate market value of the Company's common
stock, $0.10 par value, held by non-affiliates was $3,987,627,906.
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date: Common Stock, $0.10 par
value, 172,632,573 shares outstanding as of February 28, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement in connection with the 1998 Annual Meeting
of Stockholders are incorporated into Part III of this Report.
<PAGE>
TABLE OF CONTENTS
Page
Part I
Items 1. and 2. Business and Properties 3
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 14
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk 25
Item 8. Financial Statements and Supplementary Data 25
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 52
Part III
Item 10. Directors and Executive Officers of the Registrant 52
Item 11. Executive Compensation 52
Item 12. Security Ownership of Certain Beneficial Owners and
Management 52
Item 13. Certain Relationships and Related Transactions 52
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 53
_______________________
The statements regarding future performance and results, the dates the
Company's rigs being constructed or undergoing conversion to drilling
operations will enter service, and the other statements that are not
historical facts contained in this report are forward-looking statements.
The words "anticipate," "expect," "project," "estimate," "predict," "plan"
and similar expressions are also intended to identify forward-looking
statements. Such statements involve risks and uncertainties including, but
not limited to, changes in the markets for oil and gas and for offshore
drilling rigs and the risks of doing business in changing markets, changes
in the dates the Company's rigs being constructed or undergoing conversion
to drilling operations will enter service, changes in applicable tax laws,
regulations and interpretations and the risk that tax rates to which the
Company is subject could change from those anticipated, the risks involved
in dealing with other parties, including the risk that other parties'
commitments to the Company could be breached, and changing costs and other
factors discussed herein and in the Company's other Securities and Exchange
Commission filings. Should one or more risks or uncertainties materialize,
or should underlying assumptions prove incorrect, actual outcomes may vary
materially from those indicated.
<PAGE>
PART I
ITEMS 1. AND 2. BUSINESS AND PROPERTIES
Global Marine Inc. is a holding company incorporated in Delaware in 1964.
Unless otherwise provided, the term "Company" refers to Global Marine Inc.
and, unless the context otherwise requires, to its consolidated subsidiaries.
The Company's businesses are conducted by subsidiaries of Global Marine Inc.
The Company, which is headquartered in Houston, Texas, provides offshore
drilling services on a dayrate basis and offshore drilling management
services on a turnkey basis. Industry segment information relative to the
Company is set forth in Note 11 of Notes to Consolidated Financial Statements
in Item 8 of this Annual Report on Form 10-K.
Contract Drilling
Substantially all of the Company's domestic offshore contract drilling
operations are conducted by Global Marine Drilling Company ("GMDC"), a
wholly-owned subsidiary, and substantially all international offshore
contract drilling operations are conducted by Global Marine International
Services Corporation ("GMISC"), also a wholly-owned subsidiary. Contract
drilling offices are located in Houston, Texas; Lafayette, Louisiana;
Aberdeen, Scotland; Abidjan, Ivory Coast; Buenos Aires, Argentina; Cabinda,
Angola; Douala, Cameroon; London, England; Luanda, Angola; New Orleans,
Louisiana; Port Gentil, Gabon; Port Harcourt, Nigeria; Port Hueneme,
California; Pointe Noire, Republic of Congo; and Trinidad, West Indies.
The Company has a modern, diversified, active fleet of 31 mobile offshore
drilling rigs, including a fourth-generation semisubmersible that began
operating under a three-year contract in late February 1998 after its
conversion to a deep-water drilling rig, and a dynamically positioned
drillship that is nearing completion of its conversion to drilling operations
and is expected to begin drilling under a five-year contract in April 1998.
The fleet consists of 23 cantilevered jackups, five third-generation
semisubmersibles, one fourth-generation semisubmersible, one moored drillship,
and one dynamically positioned drillship. In addition, the Company has one
currently inactive concrete island drilling system ("CIDS") designed for
arctic operations. All of the Company's active rigs were placed in service
in 1979 or later, and, as of March 10, 1998, their average age was
approximately 15.2 years.
The Company's fleet is deployed in the major offshore oil and gas operating
areas worldwide. The principal areas of the Company's operations currently
include the U.S. Gulf of Mexico, offshore West Africa, and the North Sea.
Recent Acquisitions. In July 1997 the Company acquired two deep-water
third-generation semisubmersible rigs, the Maersk Vinlander and the Maersk
Jutlander, each of which is capable of being upgraded for operations in more
than 3,000 feet of water, for a combined purchase price of $250 million.
The Company financed the purchase with a combination of cash on hand and
borrowings under a bank credit facility. The Maersk Vinlander and Maersk
Jutlander are both operating in the North Sea under pre-existing bareboat
charters with third parties running through April 1998 and December 2000,
respectively. Upon completion of its current contract, the Maersk Vinlander
is scheduled to mobilize to offshore eastern Canada where it will begin work
for another customer in the third quarter of 1998 under a one-year contract
with options for up to an additional three years.
<PAGE>
In January 1998 the Company entered into an agreement to purchase a
deep-water third-generation semisubmersible, the Stena Forth, for a purchase
price of $150 million. The Company assumed operation of the rig at closing,
which occurred on March 10, 1998. The Company financed the rig's purchase
through borrowings under its bank credit facilities. The Stena Forth is
currently operating in the United Kingdom sector of the North Sea under a
drilling contract that extends through November 1999.
In February 1998 the Company received a deep-water drilling commitment from
an international oil company, requiring the construction of a new
dynamically-positioned drillship. This drillship will be initially capable
of drilling in water depths of 9,000 feet, upgradable to 12,000 feet, and is
scheduled to be delivered in the fourth quarter of 1999, after which operations
will begin in the U.S. Gulf of Mexico. In March 1998 the Company received
another long-term deep-water drilling commitment requiring new construction of
another dynamically-positioned drillship. This drillship will be initially
capable of drilling in water depths of 8,000 feet, upgradable to 12,000 feet,
and is scheduled to be delivered in the first quarter of 2000. The cost of
the two drillships will total approximately $660 million. The Company intends
to finance construction of the two ships with internally generated funds and
funds available under the Company's existing bank credit facilities.
As part of upgrading and expanding its rig fleet and other assets, the Company
considers and pursues the acquisition or construction of suitable additional
rigs and other assets on an ongoing basis. If the Company decides to undertake
an acquisition or construction of a vessel, the issuance of additional debt or
additional shares of stock could be required.
Offshore Rig Fleet. The following table lists the rigs in the Company's
drilling fleet as of March 10, 1998, indicating the year each rig was placed
in service, each rig's maximum water and drilling depth capabilities, current
location, customer, and the date each rig is expected to complete its current
drilling commitments.
<PAGE>
<TABLE>
OFFSHORE RIG FLEET
Status as of March 10, 1998
<CAPTION>
YEAR
PLACED MAXIMUM DRILLING
IN WATER DEPTH DEPTH CURRENT CONTRACT
SERVICE CAPABILITY CAPABILITY LOCATION CUSTOMER TERM (1)
-------- ----------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Cantilevered Jackup
Glomar High Island I 1979 250 ft. 20,000 ft. Gulf of Mexico Vastar Resources expires 6/98
Glomar High Island II 1979 270 ft. 20,000 ft. Gulf of Mexico Unocal expires 5/98
Glomar High Island III 1980 250 ft. 20,000 ft. West Africa Texaco expires 9/98
Glomar High Island IV 1980 250 ft. 20,000 ft. Gulf of Mexico Stone Energy expires 8/98
Glomar High Island V 1981 270 ft. 20,000 ft. West Africa Cabinda Gulf expires 9/99
Glomar High Island VII 1982 250 ft. 20,000 ft. West Africa Pecten Cameroon expires 11/98
Glomar High Island VIII 1982 250 ft. 20,000 ft. Gulf of Mexico Vastar Resources expires 6/98
Glomar High Island IX 1983 250 ft. 20,000 ft. West Africa Total expires 6/98
Glomar Adriatic I 1981 300 ft. 25,000 ft. West Africa Elf Serepca expires 12/98
Glomar Adriatic II 1981 350 ft. 25,000 ft. Gulf of Mexico NCX expires 6/98
Glomar Adriatic III 1982 328 ft. 25,000 ft. Gulf of Mexico CNG Producing expires 7/98
Glomar Adriatic IV 1983 350 ft. 25,000 ft. California SWARS expires 4/98
Glomar Adriatic V 1979 300 ft. 20,000 ft. West Africa Elf Gabon expires 4/99
Glomar Adriatic VI 1981 350 ft. 20,000 ft. Gulf of Mexico Coastal expires 7/00
Glomar Adriatic VII 1983 328 ft. 20,000 ft. Trinidad Amoco expires 1/99
Glomar Adriatic VIII 1983 300 ft. 25,000 ft. West Africa Mobil expires 3/99
Glomar Adriatic IX 1981 300 ft. 20,000 ft. West Africa Hunt expires 7/99
Glomar Adriatic X 1982 300 ft. 20,000 ft. West Africa Cabinda Gulf expires 2/99
Glomar Adriatic XI 1983 225 ft. 25,000 ft. North Sea Enterprise expires 7/99
Glomar Main Pass I 1982 300 ft. 25,000 ft. Gulf of Mexico Pennzoil expires 8/98
Glomar Main Pass IV 1982 300 ft. 25,000 ft. Gulf of Mexico Chevron expires 4/98
Glomar Labrador I 1983 300 ft. 25,000 ft. Argentina Total expires 8/98
Glomar Baltic I 1983 375 ft. 25,000 ft. Gulf of Mexico Mobil expires 6/98
Semisubmersible
Glomar Arctic I 1983 3,000 ft. 25,000 ft. Gulf of Mexico British Petroleum expires 12/98
Glomar Arctic III 1984 1,800 ft. 25,000 ft. North Sea Ranger expires 4/99
Maersk Jutlander 1982 1,200 ft. 25,000 ft. North Sea Maersk expires 12/00
Maersk Vinlander 1984 1,500 ft. 25,000 ft. North Sea Sedco expires 11/99
Glomar Celtic Sea 1998 5,000 ft. 25,000 ft. Gulf of Mexico Elf Exploration expires 2/01
Stena Forth 1983 1,800 ft. 25,000 ft. North Sea British Petroleum expires 11/99
Drillship
Glomar Robert F. Bauer 1983 2,750 ft. 25,000 ft. West Africa Arco expires 4/99
Glomar Explorer (2) - 7,800 ft. 25,000 ft. Shipyard Texaco/Chevron expires 3/03
Concrete Island
Drilling System
Glomar Beaufort Sea I (3) 1984 55 ft. 25,000 ft. Alaska - inactive
___________________
(1) Expiration dates relate to executed contracts and customer commitments
for which contracts have not yet been executed and are estimates only.
(2) The Company has substantially completed the conversion to drilling
operations of the Glomar Explorer, which is expected to enter service in
April 1998.
(3) The Glomar Beaufort Sea I concrete island drilling system is inactive
and has been excluded from the Company's rig utilization figures.
</TABLE>
Jackup rigs have elevating legs which extend to the sea bottom, providing a
stable platform for drilling, and are generally preferred in water depths of
300 feet or less. All of the Company's jackup units have drilling equipment
mounted on cantilevers, which allow the equipment to extend outward from the
rigs' hulls over fixed drilling platforms and enable operators to drill both
exploratory and development wells. The Company has extended the reach of the
cantilevers on ten of the Company's jackup rigs beyond the originally
designed reach for the rigs' respective classes. This enables the drilling
equipment to operate over larger production platforms. In addition, two of
the Company's jackups have been equipped with "skid-off packages," which
allow the drilling equipment to be transferred to fixed production platforms.
<PAGE>
The Company's two largest jackup rigs, the Glomar Labrador I and Glomar
Baltic I, are capable of operating in severe weather environments such as the
North Sea and offshore Eastern Canada.
Semisubmersible rigs are floating offshore drilling units that have pontoons
and columns that, when flooded with water, cause the unit to partially submerge
to a predetermined depth. Most semisubmersibles are anchored to the sea bottom
with mooring chains, but some use dynamic positioning ("DP"), which means they
are held in position by computer controlled propellers, known as thrusters.
Semisubmersibles are divided into four generations, distinguished mainly by
their age, environmental rating and water depth capability. The Company's
Glomar Arctic I, Glomar Arctic III, Maersk Vinlander, Maersk Jutlander and
Stena Forth semisubmersibles are third-generation, conventionally-moored rigs
suitable for drilling in deep-water, harsh-weather environments. The Company's
Glomar Celtic Sea is a fourth-generation semisubmersible capable of drilling
in water depths of up to 5,000 feet, and utilizes a mooring system that is DP
assisted.
Drillships are generally preferred for deep-water drilling in remote locations
with moderate weather environments because of their mobility and large load
carrying capability. The Company's Glomar Explorer is a dynamically positioned
drillship capable of drilling in water depths of 7,800 feet. The Glomar Robert
F. Bauer is a conventionally-moored drillship capable of drilling in water
depths of 2,750 feet.
All of the Company's active rigs are equipped with top-drive drilling systems.
Top-drive drilling systems permit drilling with extended stands of drill pipe,
reducing the number of connections required, and enable operators to rotate the
drill pipe when exiting the well bore, thereby increasing both the speed and
safety of drilling operations and reducing the risk of the drill pipe becoming
stuck in the well bore.
With the exception of the Glomar Explorer, which is leased under a 30-year
agreement, all of the rigs in the fleet are owned by the Company.
Rig Utilization. For the year ended December 31, 1997, the Company's average
utilization rate<F1> for its active rigs was 99 percent compared to 98 percent
for 1996. As of March 10, 1998, all of the Company's active rigs were under
contract. The Company estimates that customer commitments for 12 of the
Company's 31 rigs under contract as of March 10, 1998, will be completed on
or prior to August 31, 1998.
Over the past year, the terms of deep-water drilling contracts for
semisubmersibles and drillships have lengthened as oil and gas operators have
attempted to lock in the availability of rigs to carry out deep-water projects.
The drilling market for jackup rigs in shallow waters, however, particularly in
the U.S. Gulf of Mexico, continues to be characterized by short-term,
well-to-well contracts. Short-term contracts for jackup rigs have been typical
in the industry for more than a decade, and the Company considers its upcoming
contract expirations typical of prevailing market conditions and consistent
with the normal course of business. The Company attempts to employ a number of
its rigs on short-term contracts in periods of rising dayrates, enabling the
Company to contract at higher dayrates as existing contracts expire.
________________
<F1> The average rig utilization rate for a period is equal to the ratio of
days in the period during which the rigs were under contract to the
total days in the period during which the rigs were available to work,
and it excludes the CIDS and rigs while undergoing conversion to
drilling operations.
<PAGE>
As of December 31, 1997, all eleven of the Company's rigs in the Gulf of Mexico
were employed. As of that date, the industry utilization rate<F1> in the Gulf
of Mexico was 89 percent compared with a rate of 83 percent as of December 31,
1996. Revenues attributable to the Gulf of Mexico accounted for 40 percent,
36 percent and 44 percent of the Company's contract drilling revenues in 1997,
1996, and 1995, respectively.
As of December 31, 1997, all ten of the Company's rigs offshore West Africa
were employed. As of that date, the industry utilization rate offshore West
Africa was 96 percent compared with a rate of 98 percent as of December 31,
1996. Revenues from this market accounted for 36 percent, 35 percent and 21
percent of the Company's contract drilling revenues in 1997, 1996, and 1995,
respectively.
As of December 31, 1997, all four of the Company's rigs in the North Sea were
employed. As of that date, the industry utilization rate in the North Sea
was 94 percent compared with a rate of 95 percent as of December 31, 1996.
Revenues from this market accounted for 13 percent, 25 percent and 22 percent
of the Company's contract drilling revenues in 1997, 1996, and 1995,
respectively.
In addition to its presence in the major drilling markets of the Gulf of
Mexico, West Africa and the North Sea, the Company also had one rig operating
offshore in each of Trinidad, California and Argentina at December 31, 1997.
The following table sets forth the size and average utilization rates of the
Company's active rig fleet for each of the past five years.
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Rigs in service at year-end 28 26 26 24 24
Average rig utilization 99% 98% 99% 94% 91%
Backlog. The following tables show, for each of the Company's three
principal groups of drilling rigs and each geographic area in which the
Company operates, the number of rig months available and the percentage
of rig months committed for 1998, 1999 and 2000, determined on the basis of
executed contracts plus commitments as of December 31, 1997. "Rig Months
Available" includes one drillship, the Glomar Explorer, which has a contract
to drill in the Gulf of Mexico but had not entered service as of March 10,
1998, and is based on a contract commencement date of April 1998. The number
of rigs in each category is indicated in parenthesis.
<TABLE>
<CAPTION>
1998 1999 2000
------------------- ------------------- -------------------
Rig % Rig Rig % Rig Rig % Rig
Months Months Months Months Months Months
Available Committed Available Committed Available Committed
------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Jackups (23) 276 65% 276 14% 276 2%
Semisubmersibles (5) 58 91% 60 61% 60 38%
Drillships (2) 21 100% 24 58% 24 50%
--- --- ---
Total 355 71% 360 25% 360 11%
=== === ===
</TABLE>
<F1> Industry utilization rates were derived from data published by Offshore
Data Services and other information available to the Company. The
Company has adjusted the numerator (rigs working) and denominator (rigs
available) as reported by Offshore Data Services to include certain rigs
which are under contract for non-drilling uses but which are able to
compete with Company rigs and to exclude other rigs that, because of
their location or other factors, do not compete with Company rigs.
<PAGE>
<TABLE>
<CAPTION>
1998 1999 2000
------------------- ------------------- -------------------
Rig % Rig Rig % Rig Rig % Rig
Months Months Months Months Months Months
Available Committed Available Committed Available Committed
------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Gulf of Mexico (13) 151 49% 156 23% 156 19%
West Africa (10) 120 90% 120 20% 120 -
North Sea (4) 48 100% 48 60% 48 23%
Other (3) 36 64% 36 - 36 -
--- --- ---
Total 355 71% 360 25% 360 11%
=== === ===
As of December 31, 1997, the Company's contract drilling backlog was
approximately $1.2 billion, $603 million of which is expected to be realized
in 1998. The contract drilling backlog at December 31, 1996, was $792 million.
Included in contract drilling backlog at December 31, 1997 and 1996 were $346
million and $87 million, respectively, in connection with customer commitments
for which contracts had not yet been executed as of December 31.
Drilling Contracts and Major Customers. Contracts to employ the Company's
drilling rigs extend over a specified period of time or the time required to
drill a specified well or number of wells. While the final contract for
employment of a rig is the result of negotiations between the Company and the
customer, most contracts are awarded based upon competitive bidding. The
rates specified in drilling contracts are generally on a daily-rate ("dayrate")
basis, payable in U.S. dollars, and vary depending upon the type of rig
employed, equipment and services supplied, geographic location, term of the
contract, competitive conditions, and other variables. Each contract provides
for a basic dayrate during drilling operations, with lower rates or no payment
for periods of equipment breakdown, adverse weather, or other conditions
which may be beyond the control of the Company. When a rig mobilizes to or
demobilizes from an operating area, a contract may provide for different
dayrates, specified fixed amounts, or for no payment during the mobilization
period. A contract may be terminated by the customer if the rig is destroyed
or lost, if drilling operations are suspended for a specified period of time
due to a breakdown of major equipment or, in some cases, if other events occur
that are beyond the control of either party.
The Company's offshore contract drilling business is subject to the usual
risks associated with having a limited number of customers for its services.
No single customer provided more than 10 percent of consolidated revenues in
1997 or 1996. In 1995 Shell Oil Company provided $51.2 million, or 11 percent,
of consolidated revenues.
Drilling Management Services
The Company provides drilling management services priced on a completed-project
("turnkey") basis through its wholly-owned subsidiaries, Applied Drilling
Technology Inc. ("ADTI") and Global Marine Integrated Services - International
Inc. ("GMIS-I"), and through Global Marine Integrated Services - Europe
("GMIS- E"), a division of one of the Company's foreign subsidiaries. ADTI
operates primarily in the U.S. Gulf of Mexico, and GMIS-I and GMIS-E operate in
areas other than the U.S. Gulf of Mexico. Each will assume responsibility for
the design and execution of specific offshore drilling programs and deliver a
logged or loggable hole to an agreed depth for a guaranteed price. Compensation
is contingent upon satisfactory completion of the drilling program.
As of December 31, 1997, ADTI had completed 413 turnkey wells since commencing
operations in 1980, including 101 in 1997, 79 in 1996 and 57 in 1995. GMIS-E
did not undertake any turnkey wells in 1997 or
<PAGE>
1996 and completed six wells in 1995. GMIS-I completed six turnkey wells in
1997, three in 1996 and four in 1995, its first year of operations.
In addition to providing drilling management services on a turnkey basis,
GMIS-E and GMIS-I offer services as general contractors under arrangements
variously described as "partnering," "full service contracting," and
"integrated drilling services" arrangements, among others. When the Company
acts as a general contractor, it provides planning, engineering and management
services beyond the scope of its traditional contract drilling business, and
thereby assumes greater liability. GMIS-E and GMIS-I provide such planning,
engineering and management services, as well as turnkey drilling services, in
areas other than the U.S. Gulf of Mexico.
As of December 31, 1997, the Company's drilling management services contracted
backlog was approximately $55 million, all of which is expected to be realized
in 1998. As of December 31, 1996, the drilling management services backlog was
approximately $26 million.
Oil and Gas Operations
The Company conducts oil and gas exploration, development and production
activities through its wholly-owned subsidiary, Challenger Minerals Inc.
("CMI"). Such activities primarily include participation in the development
and operation of properties for oil and gas production. In addition, the
Company incurs through ADTI and other subsidiaries certain limited exploration
and leasehold acquisition costs in connection with its turnkey drilling
operations. Substantially all of the Company's oil and gas activities are
conducted in the United States offshore Louisiana and Texas and onshore in
Oklahoma and Texas. Oil and gas operations accounted for less than one
percent of the Company's revenues in 1997.
Competition and Business Environment
Offshore drilling is a highly competitive business with numerous industry
participants, none of which has a significant market share. Drilling contracts
are awarded on a competitive bid basis. An operator selecting a rig may
consider, among other things, rig availability, quality of service and
equipment, and price.
Offshore drilling is a highly cyclical business and may be impacted by oil
and gas price levels and volatility. Worldwide military, political and
economic events have contributed to oil and gas price volatility, such as
the oil and gas price declines in recent months, and are likely to continue
to do so in the future. Some other factors which have affected and are
likely to continue affecting oil and gas prices and, by extension, the level
of demand for the Company's services, include demand for oil and gas worldwide,
the ability of the Organization of Petroleum Exporting Countries ("OPEC") to
set and maintain production levels, the level of production by non-OPEC
countries, domestic and foreign tax policy, and government laws and regulations
which restrict exploration and development of oil and gas in various offshore
jurisdictions.
Competition for the skilled labor required for offshore operations has
intensified as the level of activity in the offshore drilling industry has
increased in the last few years. Although such competition has not materially
affected the Company to date, the Company has found it more difficult to find
qualified individuals, and the possibility exists that competition for skilled
labor could limit the Company's results of operations.
ADTI, GMIS-I and GMIS-E compete with other participants in the offshore
drilling industry, some of which have greater resources. In addition, the
Company's drilling management services business is subject to the usual risks
associated with having a limited number of customers for its services.
<PAGE>
Results of operations from the Company's drilling management services may be
limited by certain factors, in particular, the ability of the Company to obtain
and successfully perform turnkey drilling contracts based on competitive bids.
The Company's ability to obtain turnkey drilling contracts is largely
dependent on the number of such contracts available for bid. Accordingly,
results of the Company's drilling management service operations may vary widely
from quarter to quarter and from year to year. Furthermore, turnkey operations
may be constrained by the availability of rigs. In the U.S. Gulf of Mexico,
ADTI relied on third-party rigs for all of its rig time in 1997. The Company
currently has 16 third-party rigs under contract for its turnkey operations,
with remaining terms ranging from five to eighteen months at market-adjusted
dayrates. The future level of turnkey activity in the U.S. Gulf of Mexico is
dependent on the continued availability of third-party rigs. In the North Sea
and West Africa, the market for turnkey drilling is not well established, and
growth in these markets also may be constrained by future rig availability.
With respect to the Company's oil and gas operations, CMI experiences
competition from other oil and gas companies in all phases of its operations.
Many competing companies have substantially greater financial and other
resources. The Company's oil and gas production operations and economics are
affected by prices of oil and gas, governmental regulation, the use and
allocation of oil and gas, the extent of domestic production, and the levels of
imports and of prices of competitive fuels. They are also affected by excess
supplies of oil and gas in the Company's market areas, as well as seasonal
demand factors, tax and other laws relating to the petroleum industry and
changes in such laws, and by changing administrative regulations.
Operational Risks and Insurance
The Company's operations are subject to the usual hazards incident to the
drilling of oil and gas wells, such as blowouts, explosions, oil spills and
fires, which can severely damage or destroy equipment or cause environmental
damage. The Company's activities are also subject to perils peculiar to marine
operations, such as collision, grounding, and damage or loss from severe
weather. These hazards can cause personal injury and loss of life, severe
damage to and destruction of property and equipment, pollution or environmental
damage, and suspension of operations.
The Company maintains insurance coverage against certain general and marine
public liability, including liability for personal injury, in the amount of
$200 million, subject to a self-insured retention of no more than $250,000 per
occurrence. In addition, the Company's rigs and related equipment are
separately insured under hull and machinery policies against certain marine and
other perils, subject to a self-insured retention generally of no more than
$300,000 per occurrence. The Company's current practice is to insure each
active rig for its market value. Although each rig is insured for at least
its financial book value, the Company's insurance does not cover all costs that
would be required to replace each rig. In addition to hull and machinery
coverage, the Company purchases business interruption insurance with respect to
its operating rigs. Business interruption coverage applies only to business
interruptions as a result of losses insured under hull and machinery policies,
and is not available to the Company for interruptions arising from damages to
"spud cans," which are the bases of legs of jackup rigs. The deductible for
business interruption claims is 30 days. Although the Company currently
purchases business interruption insurance with respect to all of its operating
rigs, the decision to insure a rig against interruption risks is dependent on a
number of factors, including dayrate and utilization levels, and no assurance
can be made that the Company will continue to insure any or all of its
operating rigs against such risks. All of the Company's rigs which are
operated internationally are presently insured against loss due to war,
including terrorism.
Although the general and marine public liability policies cover liability for
pollution under most circumstances, they do not cover liability for bringing a
well under control following a blowout. In the case
<PAGE>
of turnkey drilling operations, the Company maintains insurance covering the
cost of controlling the well, including any environmental damage resulting
therefrom, the cost of cleanup, and the cost of redrilling ("well control
liabilities") in an amount not less than $20 million per occurrence subject to
a self-insured retention of $200,000 per occurrence. Under turnkey drilling
contracts, the Company generally assumes the risk of the cost of well control,
but on occasion the Company receives indemnification from the customer for such
risk in excess of the $20 million insurance coverage. In many instances,
however, the Company is not indemnified by its customers for well-control
liabilities. Furthermore, the Company is not insured against certain drilling
risks, such as stuck drill stem and loss of in-hole equipment not arising from
an insured peril, that could result in delays or nonperformance of a turnkey
drilling contract. In connection with the Company's offshore contract drilling
operations, the Company is generally indemnified for any cost of well control
by its customers. In any event, however, the Company maintains insurance
against such liabilities in the amount of $50 million per occurrence subject to
a self-insured retention of $200,000 per occurrence.
The occurrence of a significant event, including pollution or environmental
damage, not fully insured or indemnified against or the failure of a customer
to meet its indemnification obligations, could materially and adversely affect
the Company's operations and financial condition. Moreover, no assurance can
be made that the Company will be able to maintain adequate insurance in the
future at rates it considers reasonable. See "-- Governmental Regulations and
Environmental Matters."
Foreign Operations
A significant portion of the Company's revenues is attributable to drilling
operations in foreign countries. Such activities accounted for 35 percent,
40 percent and 41 percent of the Company's consolidated revenues in 1997, 1996
and 1995, respectively. Risks associated with the Company's operations in
foreign areas include risks of war and civil disturbances or other risks that
may limit or disrupt markets, expropriation, nationalization, renegotiation or
nullification of existing contracts, foreign exchange restrictions and currency
fluctuations, foreign taxation, changing political conditions and foreign and
domestic monetary policies. To date, the Company has experienced no material
loss as a result of any of these factors. Additionally, the ability of the
Company to compete in the international drilling market may be adversely
affected by foreign governmental regulations favoring or requiring the awarding
of drilling contracts to local contractors, or by regulations requiring foreign
contractors to employ citizens of, or purchase supplies from, a particular
jurisdiction. Furthermore, foreign governmental regulations, which may in the
future become applicable to the oil and gas industry, could reduce demand for
the Company's services, or such regulations could directly affect the Company's
ability to compete for customers.
Governmental Regulations and Environmental Matters
The Company's business is affected by changes in public policy and by federal,
state, foreign and local laws and regulations relating to the energy industry.
The adoption of laws and regulations curtailing exploration and development
drilling for oil and gas for economic, environmental and other policy reasons
adversely affects the Company's operations by limiting available drilling and
other opportunities in the energy service industry.
The Company's operations are subject to numerous federal, state and local laws
and regulations controlling the discharge of materials into the environment or
otherwise relating to the protection of the environment. For example, the
Company, as an operator of mobile offshore drilling units in navigable U.S.
waters and certain offshore areas, including the Outer Continental Shelf, is
liable for damages and for the cost of removing oil spills for which it may be
held responsible, subject to certain limitations. The Company's
<PAGE>
operations may involve the use or handling of materials that may be classified
as environmentally hazardous substances. Laws and regulations protecting the
environment have generally become more stringent, and may in certain
circumstances impose "strict liability," rendering a person liable for
environmental damage without regard to negligence or fault. The Company does
not believe that environmental regulations have had any material adverse effect
on its capital expenditures, results of operations or competitive position to
date, and does not presently anticipate that any material expenditures will be
required to enable it to comply with existing laws and regulations. It is
possible, however, that modification of existing regulations or the adoption of
new regulations in the future, particularly with respect to environmental and
safety standards, could have such a material adverse effect on the Company's
operations.
The U.S. Oil Pollution Act of 1990 ("OPA '90") and similar legislation enacted
in Texas, Louisiana and other coastal states address oil spill prevention and
control and significantly expand liability exposure across all spectrums of the
oil and gas industry. The Company is of the opinion that it maintains
sufficient insurance coverage to respond to the added exposures.
OPA '90 also mandated increases in the amounts of financial responsibility that
must be certified with respect to mobile offshore drilling units and offshore
facilities (e.g. oil and gas production platforms, among others) located in
U.S. waters. Operators of mobile offshore drilling units, together with
operators of vessels, must provide evidence of financial responsibility based
on a tonnage formula, which, in the Company's case, would not exceed $15
million for its largest rig located in U.S. waters. The Company has complied
with the requirement by providing evidence of adequate U.S.-based net worth.
The Company's inability to comply with the rule in the future, however, could
have a material adverse effect on its operations and financial condition.
During 1997, 45 percent of the Company's contract drilling revenues were
attributable to operations in U.S. waters, and, as of March 10, 1998, 14 of
the Company's 31 active rigs were located in U.S. waters.
OPA '90 requires lessees, permittees, or holders of a right of use for offshore
facilities (including mobile offshore drilling rigs while attached to the ocean
floor) to certify evidence of financial responsibility. This financial
responsibility requirement is $35 million for offshore facilities located
seaward of the state waters and $10 million for offshore facilities within
state waters. These amounts may be increased in the future based on
operational, health and other risks posed by the quantity and quality of oil
being handled. The Department of the Interior's Minerals Management Service is
responsible for promulgating regulations implementing the new financial
responsibility requirements with respect to offshore facilities. CMI presently
operates an offshore production platform, and ADTI's business and GMDC's
operations in the Gulf of Mexico are largely dependent on oil and gas
companies' drilling activities, which, in turn, ultimately depend on their
ability to meet the OPA '90 financial responsibility requirements. The Company
cannot predict the exact nature or effect of any regulations promulgated to
implement the revised responsibility requirements, but notes that these lower
limits in part correspond to existing requirements for facilities on the Outer
Continental Shelf.
Employees
The Company had approximately 2,500 employees at December 31, 1997. The
Company requires highly skilled personnel to operate its drilling rigs. In
recognition of this, the Company conducts extensive personnel training and
safety programs.
<PAGE>
Executive Officers of the Registrant
The name, age as of December 31, 1997, and office or offices currently held by
each of the executive officers of the Company are as follows:
Name Age Office or Offices
---- --- -----------------
David A. Herasimchuk 55 Vice President, Market Development
Thomas R. Johnson 49 Vice President and Corporate Controller
Gary L. Kott 55 Senior Vice President and Chief Financial
Officer
C. Russell Luigs 64 Chairman of the Board and Chief Executive
Officer
Jon A. Marshall 46 President of Global Marine Drilling Company
James L. McCulloch 45 Vice President, General Counsel and
Assistant Secretary
W. Matt Ralls 48 Vice President and Treasurer
John G. Ryan 45 President and Chief Operating Officer
Douglas K. Vrooman 47 President of Applied Drilling Technology Inc.
Officers serve for a one-year term or until their successors are elected and
qualified to serve. Each executive officer's principal occupation has been as
an executive officer of the Company for more than the past five years, with the
exception of Messrs. Ralls and Vrooman. Mr. Ralls has been the Company's Vice
President and Treasurer since June 1997. He served as Executive Vice
President, Chief Financial Officer and a director of Kelley Oil Corporation
from 1990 to 1996, after which he was Vice President of Capital Markets and
Corporate Development for The Meridian Resource Corporation. Mr. Vrooman has
been President of Applied Drilling Technology Inc. ("ADTI") since 1995. He
joined ADTI in 1994 as Operations Manager after 24 years in onshore and
offshore drilling operations with Exxon and Freeport McMoRan.
Mr. Ryan is presently on medical leave, having had a tumor surgically removed
from the cerebellum on February 9, 1998, at the M.D. Anderson Cancer Center in
Houston, Texas. The tumor appears to be related to a malignant melanoma for
which Mr. Ryan underwent surgery in 1996. His recovery and test results to
date have been encouraging, and both Mr. Ryan and the Company expect that he
will end his medical leave and resume his duties with the Company in the near
future. Mr. Luigs is handling Mr. Ryan's duties during his medical leave.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's security holders
during the fourth quarter of 1997.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock, $0.10 par value per share, is listed on the New
York Stock Exchange under the symbol "GLM." At February 28, 1998, there were
7,619 stockholders of record of the Common Stock. The high and low sales
prices of the Common Stock as reported on the New York Stock Exchange
Composite Transactions Tape for each full quarterly period within the past two
years appear under "Consolidated Selected Quarterly Financial Data," which
follows the notes to the consolidated financial statements.
The Company did not declare any dividends on its common stock in either 1997 or
1996. Subject to the preferential dividend rights of holders of the Company's
preferred stock, if any, the holders of the Common Stock will be entitled to
receive when, as and if declared by the Board of Directors out of funds legally
available therefor, all other dividends payable in cash, in property, or in
shares of Common Stock. The Company has no present intentions to declare or
pay dividends on the Common Stock in the foreseeable future, but reconsiders
the declaration and payment of dividends from time to time.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
</TABLE>
<TABLE>
GLOBAL MARINE INC. AND SUBSIDIARIES
FIVE-YEAR REVIEW
(In millions, except per share and operational data)
<CAPTION>
-------------------------------------------------------
1997 1996 1995 1994 1993
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Financial Performance
Revenues:
Contract drilling $ 579.4 $ 362.5 $ 248.9 $ 211.4 $ 200.3
Drilling management services 480.5 305.3 209.3 137.8 57.1
Oil and gas 7.2 12.9 9.8 9.8 11.6
-------- ------- ------- ------- -------
Total revenues $1,067.1 $ 680.7 $ 468.0 $ 359.0 $ 269.0
======== ======= ======= ======= =======
Operating income:
Contract drilling $ 274.8 $ 125.4 $ 54.6 $ 25.6 $ 4.5
Drilling management se rvices 50.0 27.9 17.3 10.8 7.6
Oil and gas 2.1 6.8 3.4 3.7 5.3
Corporate expenses (21.8) (19.3) (15.0) (14.0) (14.2)
-------- ------- ------- ------- -------
Total operating income 305.1 140.8 60.3 26.1 3.2
-------- ------- ------- ------- -------
Other income (expense):
Interest expense (39.7) (30.9) (30.2) (30.2) (32.1)
Interest capitalized 20.9 2.6 5.6 3.7 -
Interest income 7.7 6.2 4.7 3.8 2.7
Other - 1.0 14.7 2.0 -
-------- ------- ------- ------- -------
Total other income (expense) (11.1) (21.1) (5.2) (20.7) (29.4)
-------- ------- ------- ------- -------
Income (loss) before income taxes,
extraordinary item and accounting change 294.0 119.7 55.1 5.4 (26.2)
Provision for income taxes:
Current tax provision 33.5 9.6 3.2 0.6 0.3
Deferred tax benefit (54.6) (70.0) - - -
-------- ------- ------- ------- -------
Total income tax provision (benefit) (21.1) (60.4) 3.2 0.6 0.3
-------- ------- ------- ------- -------
Income (loss) before extraordinary item and
cumulative effect of accounting change 315.1 180.1 51.9 4.8 (26.5)
Extraordinary loss on extinguishment of debt, net (4.5) - - - -
Cumulative effect of accounting change - - - (3.5) -
-------- ------- ------- ------- -------
Net income (loss) $ 310.6 $ 180.1 $ 51.9 $ 1.3 $ (26.5)
======== ======= ======= ======= =======
Income (loss) per share before extraordinary
item and accounting change (1):
Basic $ 1.84 $ 1.07 $ 0.31 $ 0.03 $ (0.17)
Diluted $ 1.79 $ 1.03 $ 0.31 $ 0.03 $ (0.17)
Net income (loss) per share (1):
Basic $ 1.81 $ 1.07 $ 0.31 $ 0.01 $ (0.17)
Diluted $ 1.76 $ 1.03 $ 0.31 $ 0.01 $ (0.17)
Average common shares - Basic 171.2 167.9 165.1 163.8 152.0
Average common shares - Diluted 176.2 174.3 169.4 166.7 155.0
Dividends declared per common share $ - $ - $ - $ - $ -
Capital expenditures $ 580.3 $ 118.3 $ 73.5 $ 75.9 $ 40.6
Depreciation, depletion and amortization $ 55.1 $ 40.9 $ 31.0 $ 37.4 $ 35.9
Financial Position (end of year)
Working capital $ 144.2 $ 158.9 $ 116.2 $ 93.4 $ 107.2
Net properties $ 999.0 $ 477.4 $ 386.6 $ 353.4 $ 314.6
Total assets $1,421.9 $ 807.8 $ 563.0 $ 512.4 $ 492.9
Long-term debt, including capital lease obligation $ 417.5 $ 241.8 $ 225.0 $ 225.0 $ 225.0
Shareholders' equity $ 805.6 $ 459.1 $ 269.0 $ 212.3 $ 205.4
Operational Data
Average rig utilization (2) (3) 99% 98% 99% 94% 91%
Fleet average dayrate (4) $ 55,700 $38,000 $28,700 $25,600 $25,600
Number of active rigs (end of year) (3) 28 26 26 24 24
Turnkey wells completed 107 82 67 52 18
Number of employees (end of year) 2,500 2,100 2,100 1,700 1,500
_________________
(1) In 1997 the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings per Share." Prior periods presented have been
restated to conform to the new requirements.
(2) The average rig utilization rate for a period is equal to the ratio of
days in the period during which the rigs were under contract to the total
days in the period during which the rigs were available to work.
(3) Excludes the Glomar Beaufort Sea I concrete island drilling system, a
currently inactive, special-purpose mobile offshore rig designed for
arctic operations, and the Glomar Explorer and Glomar Celtic Sea, which,
as of December 31, 1997, were being converted to drilling rigs.
(4) Contract drilling revenues less non-rig related revenues divided by the
aggregate contract days, adjusted to exclude days under contract at zero
dayrate.
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Operating Results
Summary
Operating income increased by $164.3 million to $305.1 million in 1997 from
$140.8 million in 1996, primarily the result of higher contract drilling
dayrates and an increase in the number of turnkey drilling contracts completed.
In 1996 operating income increased by $80.5 million to $140.8 million from
$60.3 million in 1995. The improvement in operating results was primarily
due to higher contract drilling dayrates, the full-year effect of three rigs
which the Company placed into service in 1995, and an increase in the number of
turnkey wells completed.
Data relating to the Company's operations by business segment follows:
<TABLE>
<CAPTION>
Increase Increase
1997 (Decrease) 1996 (Decrease) 1995
---- -------- ---- -------- ----
($ in millions)
<S> <C> <C> <C> <C> <C>
Revenues:
Contract drilling $ 584.7 59% $368.2 42% $258.4
Drilling management 482.6 58% 306.3 44% 212.8
Oil and gas 7.2 (44%) 12.9 32% 9.8
Less: Intersegment revenues (7.4) 10% (6.7) (48%) (13.0)
-------- ------ ------
$1,067.1 57% $680.7 45% $468.0
======== ====== ======
Operating income:
Contract drilling $ 274.8 119% $125.4 130% $ 54.6
Drilling management 50.0 79% 27.9 61% 17.3
Oil and gas 2.1 (69%) 6.8 100% 3.4
Corporate expenses (21.8) 13% (19.3) 29% (15.0)
-------- ------ ------
$ 305.1 117% $140.8 133% $ 60.3
======== ====== ======
</TABLE>
The Company reported net income of $310.6 million for 1997 as compared with net
income of $180.1 million for 1996 and $51.9 million for 1995. Net income for
1997 included a $4.5 million after-tax extraordinary charge in connection with
the redemption of all $224 million of the Company's 12-3/4% Senior Secured
Notes and a $45.0 million net credit to income taxes. The income tax
adjustment consisted of a net credit to deferred taxes in connection with the
recognition of the future tax benefits of net operating loss carryforwards,
partially offset by charges to current and deferred taxes for the effects of a
realignment of the Company's foreign operations. Net income for 1996 included
a $70.0 million net credit to deferred income taxes due to the recognition of
tax benefits of operating loss carryforwards, and net income for 1995 included
a $14.7 million gain on the sale of the offshore drilling rig, Glomar Main Pass
III. Excluding these unusual items, net income for 1997, 1996 and 1995 was
$270.1 million, $110.1 million and $37.2 million, respectively.
During 1997, continuing strong demand for contract drilling services caused
industry dayrates for offshore rigs to increase in all geographic markets in
which the Company operated, and demand for drilling management services
continued to grow.
<PAGE>
In July 1997 the Company completed the purchase of two deep-water,
third-generation semisubmersible drilling rigs, the Maersk Vinlander and the
Maersk Jutlander, for a combined purchase price of $250 million. The Maersk
Vinlander is currently operating in the U.K. sector of the North Sea under a
bareboat charter running through April 1998, and the Maersk Jutlander is
operating in the Norwegian sector of the North Sea under a bareboat charter
through December 2000. Upon completion of the current contract, the Maersk
Vinlander is scheduled to mobilize to offshore eastern Canada where it will
begin work for another customer in the third quarter of 1998 under a one-year
contract with options for up to an additional three years.
As part of the Company's strategy to increase its ability to respond to
expanding opportunities in foreign markets, in December 1997 the Company
realigned its foreign operations by transferring substantially all of its rigs
and other assets operating outside the United States to its wholly-owned
foreign subsidiaries.
In January 1998 the Company entered into an agreement to purchase a deep-water,
third-generation semisubmersible, the Stena Forth, for a purchase price of $150
million. The Company assumed operation of the rig at closing, which occurred
on March 10, 1998. The Stena Forth is currently operating in the U.K. sector
of the North Sea under a drilling contract that extends through November 1999.
The Glomar Celtic Sea semisubmersible began operating in the U.S. Gulf of
Mexico under a three-year contract in late February 1998 after its conversion
to a deep-water drilling rig. The Glomar Explorer drillship is nearing
completion of its conversion to drilling operations and is expected to begin
drilling under a five-year contract in April 1998. The Company's deep-water
fleet will total eight rigs with the addition of the Glomar Celtic Sea,
Glomar Explorer, Maersk Vinlander, Maersk Jutlander and Stena Forth.
In February 1998 the Company received a deep-water drilling commitment from an
international oil company, requiring the construction of a new
dynamically-positioned drillship. This drillship will be initially capable
of drilling in water depths of 9,000 feet, upgradable to 12,000 feet, and is
scheduled to be delivered in the fourth quarter of 1999, after which operations
will begin in the U.S. Gulf of Mexico. In March 1998 the Company received
another long-term deep-water drilling commitment requiring new construction of
another dynamically-positioned drillship. This drillship will be initially
capable of drilling in water depths of 8,000 feet, upgradable to 12,000 feet,
and is scheduled to be delivered in the first quarter of 2000. The cost of
the two drillships will total approximately $660 million. The Company intends
to finance construction of the two ships with internally generated funds and
funds available under the Company's existing bank credit facilities.
<PAGE>
Contract Drilling Operations
Data with respect to the Company's contract drilling operations follows:
<TABLE>
<CAPTION>
Increase Increase
1997 (Decrease) 1996 (Decrease) 1995
---- -------- ---- -------- ----
($ in millions, except for fleet average dayrate)
<S> <C> <C> <C> <C> <C>
Contract drilling revenues
by area: (1)
Gulf of Mexico $ 235.8 76% $ 133.7 18% $ 112.9
West Africa 211.1 62% 130.4 136% 55.3
North Sea 77.0 (14%) 90.0 62% 55.6
Other 60.8 331% 14.1 (59%) 34.6
------- ------- -------
$ 584.7 59% $ 368.2 42% $ 258.4
======= ======= =======
Average rig utilization (2) 99% 98% 99%
Fleet average dayrate $55,700 $38,000 $28,700
_________________
(1) Includes revenues earned from affiliates.
(2) Excludes the Glomar Beaufort Sea I concrete island drilling system, a
currently inactive, special-purpose mobile offshore rig designed for
arctic operations, and the Glomar Explorer and Glomar Celtic Sea, which,
as of December 31, 1997, were being converted to drilling rigs.
</TABLE>
Of the $216.5 million increase in contract drilling revenues for 1997 compared
to 1996, $183.6 million was attributable to increases in dayrates, $20.7
million was attributable to increases in non-dayrate revenues, $9.8 million was
attributable to the addition of the Maersk Vinlander and Maersk Jutlander in
mid-1997, and $2.4 million was attributable to higher rig utilization.
Of the $109.8 million increase in contract drilling revenues for 1996 compared
to 1995, $79.2 million was attributable to increases in dayrates, $31.1 million
was attributable to the full-year effect of the Glomar Adriatic IX, Glomar
Adriatic X and Glomar Adriatic XI, which were placed into service in 1995, and
$1.9 million was attributable to increases in non-dayrate revenues. Such
increases were partially offset by decreases of $1.2 million attributable to
lower rig utilization and $1.2 million due to the 1995 sale of the Glomar Main
Pass III.
The mobilization of rigs between the geographic areas shown in the above table
also affected each area's revenues over the periods indicated. Specifically,
the Company mobilized one jackup from the North Sea to offshore Argentina in
September 1997, one jackup from West Africa to California in July 1997, one
jackup from the Gulf of Mexico to Trinidad in June 1997, one semisubmersible
from the North Sea to the Gulf of Mexico in December 1996, and four rigs to
West Africa in 1996, including one jackup from the U.S. Gulf of Mexico, one
jackup from Abu Dhabi, one jackup from Trinidad, and one drillship from the
Middle East.
The Company's operating profit margin for contract drilling operations
increased to 47 percent in 1997 from 34 percent in 1996 and 21 percent in 1995.
The increases in operating profit margins were due to higher dayrates in 1997
and 1996 compared to the preceding years. Operating expenses increased to
$309.9 million in 1997 from $242.8 million in 1996 and $203.8 million in 1995.
Increases in operating costs were attributable to higher depreciation, labor,
rig mobilizations, repairs and maintenance and, among other expenses, a higher
payout with respect to three rigs under a net revenue-sharing arrangement with
Transocean Drilling AS.
Demand for contract drilling services in the U.S. Gulf of Mexico, which rose
steadily between the second quarter of 1995 and the third quarter of 1997,
remains strong despite industry concerns about downward trends in oil and
natural gas prices in late 1997 and early 1998. The Company believes that
few drilling
<PAGE>
programs have been cut back, active utilization remains essentially at 100
percent, and dayrates are holding at the record levels set in the fourth
quarter of 1997. If the downward trends in oil and gas pricing continue,
however, the Company's clients are likely to trim their drilling budgets.
Based on past experience, if operators jointly release enough rigs to lower
active utilization below approximately 95 percent, market dayrates would likely
decline. The Company averaged 99 percent utilization for its drilling rigs in
the Gulf of Mexico for 1997 and 100 percent for 1996 and 1995. As of March 10,
1998, all 12 of the Company's rigs in the Gulf of Mexico were under contract.
The outlook for the West African market is similar to that of the U.S. Gulf of
Mexico. The Company's average utilization rate for its rigs located offshore
West Africa was 100 percent for 1997 and 1996, and 95 percent for 1995. As of
March 10, 1998, all ten of the Company's rigs located offshore West Africa
were under contract.
The North Sea market continues to strengthen, with new contracts being awarded
at record high rates for jackups and holding the record high rates set for
semisubmersibles in the last half of 1997. Rig availability is extremely tight
for both jackups and semisubmersibles for the balance of 1998, and operators
are contracting now for programs that cannot start until 1999 because rigs are
not available. The Company averaged 100 percent utilization for its rigs in
the North Sea for 1997 and 1995, and 97 percent for 1996. As of March 10,
1998, all five of the Company's rigs in the North Sea were under contract. The
Company intends to mobilize a jackup rig, the Glomar Adriatic VI, to the North
Sea from the Gulf of Mexico in April 1998. The Glomar Adriatic VI has three
customer contracts that in total cover the period from May 1998 through July
2000. The cost of the mobilizations will be reimbursed by the customers.
In 1997 the Company continued to expand its presence in the deep-water market
with the purchase of two third-generation semisubmersibles, the Maersk
Vinlander and Maersk Jutlander. Focusing primarily on deep water, the Company
continues to pursue opportunities to expand its fleet by purchasing existing
rigs or building new ones.
In February 1998 the Company completed the conversion of the Glomar Celtic Sea
semisubmersible to drilling operations from other uses, and by month-end the
rig began operating in deep waters of the U.S. Gulf of Mexico under a
three-year contract. The conversion of the Glomar Explorer drillship to a
deep-water drilling rig is nearing completion and the rig is expected to begin
drilling in the U.S. Gulf of Mexico under a five-year contract in April 1998.
The two rigs are expected to generate revenues at an annual rate of $107
million under these contracts.
The Company estimates that customer commitments for 12 of the Company's 31 rigs
under contract as of March 10, 1998, will be completed on or prior to August
31, 1998. Over the past year, the terms of deep-water drilling contracts for
semisubmersibles and drillships have lengthened as oil and gas operators have
attempted to lock in the availability of rigs to carry out deep-water projects.
The drilling market for jackup rigs in shallow waters, however, particularly in
the U.S. Gulf of Mexico, continues to be characterized by short-term,
well-to-well contracts. Short-term contracts for jackup rigs have been typical
in the industry for more than a decade, and the Company considers its upcoming
contract expirations typical of prevailing market conditions and consistent
with the normal course of business. The Company attempts to employ a number of
its rigs on short-term contracts in periods of rising dayrates, enabling the
Company to contract at higher dayrates as existing contracts expire.
<PAGE>
Drilling Management Services
Drilling management revenues increased by $176.3 million to $482.6 million in
1997 from $306.3 million in 1996, and operating income increased by $22.1
million to $50.0 million in 1997 from $27.9 million in 1996. The increase in
revenues consisted of an $88.9 million increase attributable to an increase in
the number of turnkey wells completed, from 82 in 1996 to 107 in 1997, a $53.2
million increase attributable to daywork and other revenues, and a $34.2
million increase attributable to higher average turnkey revenues per well.
Revenues for drilling management services increased by $93.5 million to $306.3
million in 1996 from $212.8 million in 1995, and operating income increased by
$10.6 million to $27.9 million from $17.3 million in 1995. The $93.5 million
increase in revenues consisted of $47.1 million attributable to an increase in
the number of turnkey wells completed, from 67 in 1995 to 82 in 1996, $23.4
million attributable to daywork and other revenues, and $23.0 million
attributable to higher average turnkey revenues per well.
The increases in the number of turnkey wells completed in 1997 and 1996
compared to the preceding years were attributable in part to more competitive
pricing and oil and gas operators' increased reliance on turnkey contractors to
supplement internal drilling staffs.
Operating income from drilling management services as a percentage of drilling
management revenues increased to 10 percent for 1997 from 9 percent for 1996
and 8 percent for 1995. The increases in profit margins were attributable
primarily to the higher average turnkey revenues per well. The Company
incurred losses on 9 turnkey wells in 1997, 11 in 1996 and 4 in 1995, totaling
$5.9 million, $12.1 million and $5.7 million, respectively.
Results of operations from the Company's drilling management services may be
limited by certain factors, in particular, the ability of the Company to obtain
and successfully perform turnkey drilling contracts based on competitive bids.
The Company's ability to obtain turnkey drilling contracts is largely dependent
on the number of such contracts available for bid. Accordingly, results of the
Company's drilling management service operations may vary widely from quarter
to quarter and from year to year. Furthermore, turnkey operations may be
constrained by the availability of rigs. In the U.S. Gulf of Mexico, the
Company relied on third-party rigs for all of its turnkey rig time in 1997.
The Company currently has 16 third-party rigs under contract for its turnkey
operations, with remaining terms ranging from five to eighteen months at
market-adjusted dayrates. The future level of turnkey activity in the U.S.
Gulf of Mexico is dependent on the continued availability of third-party rigs.
In the North Sea and West Africa, the market for turnkey drilling is not well
established, and growth in these markets also may be constrained by future rig
availability.
Other Income and Expense
General and administrative expenses increased to $20.5 million in 1997 from
$18.3 million in 1996 and $14.4 million in 1995. The increases in 1997 and
1996 were largely attributable to charges in connection with a stock-based
employee compensation plan. Such charges were based in part on changes in the
market price of the Company's common stock.
Interest expense was $39.7 million for 1997, $30.9 million for 1996 and $30.2
million for 1995. The increase from 1996 to 1997 was primarily due to interest
on the 7-1/8% Notes, which were issued in
<PAGE>
September 1997 prior to redemption of the 12-3/4% Senior Secured Notes, and
borrowings under a bank revolving credit facility. The increase from 1995 to
1996 was due to interest expense on the capital lease for the Glomar Explorer.
The Company capitalized $20.9 million of interest expense in 1997, $2.6 million
in 1996, and $5.6 million in 1995 in connection with rig conversions and/or
refurbishments. In 1996 and 1997 the Company capitalized interest in
connection with the conversions of the Glomar Celtic Sea and Glomar Explorer,
and in 1995 the Company capitalized interest in connection with the
refurbishments of the Glomar Adriatic IX and Glomar Adriatic X and the
conversion of the Glomar Adriatic XI to a drilling rig from an accommodations
unit.
Interest income increased to $7.7 million in 1997 from $6.2 million in 1996 and
$4.7 million in 1995 primarily due to higher short-term investment balances.
The Company recognized a gain of $1.1 million on the sale of two oil and gas
properties in 1996 and a gain of $14.7 million on the sale of an offshore
drilling rig, the Glomar Main Pass III, in 1995.
In 1997 and 1996 the Company reduced a valuation allowance pertaining to the
value of future tax benefits of net operating loss ("NOL") carryforwards and
other deferred tax assets recorded on its balance sheet. These NOL
carryforwards can be used to reduce taxable income in future years. The
reduction in the valuation allowance was required because of the strength in
the offshore drilling industry and a belief that Company earnings in future
years would be sufficient to realize the tax benefits of the NOL carryforwards
prior to their expiration. The effect of reducing the valuation allowance was
to significantly reduce income tax expense in both 1997 and 1996.
In December 1997 the Company realigned the ownership of its foreign operating
assets within the Global Marine group and created a separate international
operating unit in connection with its strategy to increase its ability to
respond to expanding opportunities in foreign markets. So long as the Company
is able to permanently reinvest outside the U.S. the 1998 earnings of its
foreign subsidiaries, management believes that income tax expense as a
percentage of pre-tax income will range from 25 to 30 percent in 1998. Most of
the tax expense in 1998 will be noncash because the Company will use its NOL
carryforwards to significantly reduce its current U.S. federal income tax
liability for the year.
Competition for skilled labor required for offshore operations has intensified
as the level of activity in the offshore drilling industry has increased in the
last few years. Although such competition has not materially affected the
Company to date, the Company has found it more difficult to find qualified
individuals, and the possibility exists that competition for skilled labor
could limit the Company's results of operations.
Liquidity and Capital Resources
Financing and Investing Activities
In July 1997 the Company amended and restated its revolving credit facility
with a group of major banks, increasing its credit limit to $250 million from
$100 million, and used $200 million drawn under the facility, together with $50
million of cash on hand, to purchase two deep-water semisubmersibles, the
Maersk Vinlander and Maersk Jutlander, for a combined purchase price of $250
million.
<PAGE>
In addition to the purchase of the Maersk Vinlander and Maersk Jutlander, other
capital expenditures for 1997 were $142.4 million for the conversion of the
Glomar Celtic Sea, $120.0 million for the conversion of the Glomar Explorer,
$41.7 million for improvements to the existing fleet, $20.9 million for
capitalized interest, and $5.3 million for other expenditures.
In September 1997 the Company issued $300 million of 7-1/8% Notes due 2007
(the "7-1/8% Notes") and received cash proceeds of $299.3 million, of which
$200 million was used to pay all amounts outstanding under the revolving credit
facility.
In December 1997 the Company terminated its $250 million revolving credit
facility and entered into a new five-year, unsecured revolving credit facility
with substantially the same group of banks under which the Company may borrow
up to $240 million on more favorable terms.
In December 1997 the Company redeemed the entire $223.9 million of 12-3/4%
Senior Secured Notes due 1999 (the "Senior Secured Notes") then outstanding at
a price of 102 percent of principal, plus accrued interest. The total required
payment was $242.6 million, which was funded with cash on hand, including the
balance of the proceeds from the 7-1/8% Note issuance, together with $100
million drawn under the $240 million bank revolving credit facility. The
Company recorded an extraordinary charge on debt extinguishment in the amount
of $4.5 million, net of a $2.4 million income tax benefit.
Historical Cash Flows
In 1997 cash flow provided by operating activities amounted to $359.3 million.
An additional $397.1 million was provided from the issuance of long-term debt
(net of issue costs) and net borrowings under the revolving credit facilities,
$25.8 million was provided from maturities of marketable securities (net of
purchases), $10.0 million was provided from the exercise of employee stock
options, and $3.6 million was provided from sales of properties and equipment.
From the $795.8 million sum of cash inflows, plus available cash, $580.3
million was used for capital expenditures and $229.5 million was used to redeem
long-term debt.
In 1996 cash flow provided by operating activities amounted to $139.2 million.
An additional $25.9 million was provided from maturities of marketable
securities (net of purchases), $9.2 million was provided from the exercise of
stock options, and $3.7 million was provided from sales of properties and
equipment. From the $178.0 million sum of cash inflows, $118.3 million was
used for capital expenditures.
In 1995 cash flow provided by operating activities amounted to $75.0 million.
An additional $23.9 million was provided from sales of properties and
equipment, primarily the sale of the Glomar Main Pass III. From the $98.9
million sum of cash inflows from operations and proceeds from sales of
properties and equipment, plus available cash, $73.5 million was used for
capital expenditures and $28.8 million was used for purchases of marketable
securities (net of maturities).
Future Cash Requirements
As of December 31, 1997, the Company had long-term debt of $417.3 million and
shareholders' equity of $805.6 million. Long-term debt at December 31 consisted
of $299.4 million of 7-1/8% Notes due 2007, $100.0 million of borrowings under
the Company's $240 million revolving credit facility, and a $17.9 million
capital lease obligation.
<PAGE>
The annual interest on the 7-1/8% Notes is $21.4 million, payable semiannually
each March and September.
The Company may redeem the 7-1/8% Notes in whole at any time, or in part from
time to time, at a price equal to 100 percent of the principal amount thereof
plus accrued interest, if any, to the date of redemption, plus a premium, if
any, relating to the then prevailing Treasury Yield and the remaining life of
the notes. The indenture relating to the 7-1/8% Notes contains limitations on
the Company's ability to incur indebtedness for borrowed money secured by
certain liens and to engage in certain sale/leaseback transactions.
At a closing held on March 10, 1998, the Company purchased a deep-water
semisubmersible drilling rig, the Stena Forth, for a purchase price of $150
million. The Company financed the rig's purchase through borrowings under its
bank credit facilities. The Stena Forth is an enhanced Friede & Goldman L-907
design rig built in 1983 at Daewoo Shipbuilding in South Korea. The rig is
substantially similar to the Company's Glomar Arctic I, Glomar Arctic III, and
Maersk Jutlander third-generation semisubmersibles. The Stena Forth is
currently equipped to drill in water depths to 1,800 feet and is capable of
being modified for water depths in excess of 3,000 feet. The Stena Forth is
operating in the U.K. sector of the North Sea under a contract that extends
through November 1999. This contract is expected to generate total revenues
of approximately $64 million and will contribute immediately to the Company's
earnings and cash flow.
The Stena Forth is the fifth deep-water addition since 1995 and has increased
the size of the Company's deep-water fleet to a total of eight rigs. The
deep-water segment of the Company's fleet is expected to generate approximately
40 percent of the Company's cash flow from contract drilling operations in
1998.
In February 1998 the Company received a deep-water drilling commitment from an
international oil company. The contract will require construction of a
new dynamically-positioned drillship that the customer will use for thirty of
thirty-six months following delivery, followed by two one-year options.
Revenues to be generated over the thirty-month period are approximately $186
million. The drillship is scheduled to be delivered in the fourth quarter of
1999, after which operations will begin in the U.S. Gulf of Mexico. The new
drillship will be initially capable of drilling in water depths of 9,000 feet,
upgradable to 12,000 feet.
In March 1998 the Company received another long-term deep-water drilling
commitment requiring new construction of another dynamically-positioned
drillship. This latest contract is with a major multinational oil company
for use of the rig for a period of three years and is expected to generate
revenues of approximately $208 million. The customer has the right to reduce
the term to two years prior to July 1, 1998, in which case the Company may
market the drillship for two six-month periods in the three years following
delivery. The Company may take either the first or second six-month period
of the first year following delivery from the shipyward and another six-month
period following the customer's first year of use. The new drillship will be
initally capable of drilling in water depths of 8,000 feet, upgradable to
12,000 feet. Delivery is scheduled for the first quarter of 2000.
The cost of the two new drillships will total approximately $660 million, of
which approximately $265 million in construction costs and $9 million of
capitalized interest are expected to be incurred in 1998. The Company intends
to finance construction of the two ships with internally generated funds and
funds available under the Company's existing bank credit facilities.
<PAGE>
Capital expenditures for 1998 are estimated to be $559 million, including $150
million to purchase the Stena Forth, $265 million for construction of the new
drillships, $27 million to complete the conversion of the Glomar Celtic Sea, $58
million to complete the conversion of the Glomar Explorer, $44 million for
improvements to the remainder of the drilling fleet, $13 million for capitalized
interest, and $2 million for other capital expenditures.
Operating lease payments for 1998, primarily for offshore drilling rigs used in
the Company's turnkey drilling operations, are expected to be a minimum of
$81.8 million based on leases with original terms of at least one year in
effect at December 31, 1997.
Sources of Liquidity
As of December 31, 1997, the Company had $80.6 million of cash, cash
equivalents and marketable securities, including $1.5 million which was
restricted from use for general corporate purposes. As of December 31, 1996,
the Company had $120.4 million in cash, cash equivalents and marketable
securities.
In January 1998 the Company entered into a new one-year $150 million unsecured
credit facility in connection with the purchase of the Stena Forth, bringing
the Company's total bank credit facilities to $390 million. As of March 10,
1998, $50 million was available for future borrowings under all bank credit
facilities.
The Company believes that it will be able to meet all of its current
obligations, including capital expenditures and debt service, from its
existing bank credit facilities, its cash flow from operations, and its cash,
cash equivalents and marketable securities.
As part of upgrading and expanding its rig fleet and other assets, the
Company considers and pursues the acquisition or construction of suitable
additional rigs and other assets on an ongoing basis. If the Company decides
to undertake an acquisition or the construction of a vessel, the issuance of
additional debt or additional shares of stock could be required.
The Company has a registration statement on Form S-3 for the proposed offering
from time to time of (i) debt securities that may be subordinated to other
indebtedness of the Company, (ii) shares of preferred stock, $0.01 par value
per share, and/or (iii) shares of common stock, $0.10 par value per share, for
an aggregate initial public offering price not to exceed $75 million. Any net
proceeds from the sale of offered securities would be used for general
corporate purposes which may include, but are not limited to, capital
expenditures and the financing of acquisitions. The Company has not offered
for sale or sold any securities under this registration statement.
Year 2000 Impact
The "Year 2000" problem refers to the inability of computer programs to
correctly interpret the century from a date in which the year is represented
by only two digits. A computer system which is not Year 2000 compliant would
not be able to correctly process certain data, or in extreme situations, could
cause the entire system to be disabled. In 1995 the Company purchased and
developed new accounting, payroll, personnel and purchasing software as part of
the migration of its computer systems from a mainframe platform to a PC-based
client/server platform. The Company has tested these new systems and believes
them to be Year 2000 compliant. The Company has other, non-critical computer
systems that have not yet been fully evaluated. The Company has initiated a
task force which will evaluate these other systems
<PAGE>
within the next year, and believes that in the event these other systems are
not Year 2000 compliant, they can become compliant with minimal cost to the
Company.
The Company has initiated discussions with its significant suppliers and
customers to determine the extent to which their failure to correct their own
Year 2000 issues could affect the Company. The Company cannot guarantee that
Year 2000 problems, if any, in other companies' systems on which it relies will
be timely resolved or that other companies' failure to resolve such problems,
or resolutions incompatible with the Company's systems, would not have a
material adverse effect on the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not significant.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Global Marine Inc.
We have audited the consolidated balance sheet of Global Marine Inc. and
subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Global Marine
Inc. and subsidiaries as of December 31, 1997 and 1996, and the consolidated
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997 in conformity with generally accepted
accounting principles.
/s/ Coopers & Lybrand L.L.P.
Houston, Texas
March 11, 1998
<PAGE>
[THIS PAGE INTENTIONALLY BLANK]
<PAGE>
<TABLE>
GLOBAL MARINE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In millions, except per share data)
<CAPTION>
Year Ended December 31,
------------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Revenues:
Contract drilling $ 579.4 $362.5 $248.9
Drilling management 480.5 305.3 209.3
Oil and gas 7.2 12.9 9.8
-------- ------ ------
Total revenues 1,067.1 680.7 468.0
Expenses:
Contract drilling 252.9 200.8 166.9
Drilling management 430.2 277.3 192.0
Oil and gas 3.3 2.6 3.4
Depreciation, depletion and amortization 55.1 40.9 31.0
General and administrative 20.5 18.3 14.4
-------- ------ ------
762.0 539.9 407.7
-------- ------ ------
Operating income 305.1 140.8 60.3
Other income (expense):
Interest expense (39.7) (30.9) (30.2)
Interest capitalized 20.9 2.6 5.6
Interest income 7.7 6.2 4.7
Gain on sale of offshore drilling rig - - 14.7
Other - 1.0 -
-------- ------ ------
Total other income (expense) (11.1) (21.1) (5.2)
-------- ------ ------
Income before income taxes and
extraordinary item 294.0 119.7 55.1
Provision (benefit) for income taxes:
Current income tax provision 33.5 9.6 3.2
Deferred income tax benefit (54.6) (70.0) -
-------- ------ ------
Total provision (benefit) for income
taxes (Note 8) (21.1) (60.4) 3.2
-------- ------ ------
Income before extraordinary item 315.1 180.1 51.9
Extraordinary loss on extinguishment of
debt, net of income tax benefit of $2.4
(Note 3) (4.5) - -
-------- ------ ------
Net income $ 310.6 180.1 $ 51.9
======== ====== ======
Basic earnings per common share (Note 9):
Before extraordinary item $ 1.84 $ 1.07 $ 0.31
Extraordinary loss on extinguishment of
debt, net (0.03) - -
-------- ------ ------
Basic earnings per common share $ 1.81 $ 1.07 $ 0.31
======== ====== ======
Diluted earnings per common share (Note 9):
Before extraordinary item $ 1.79 $ 1.03 $ 0.31
Extraordinary loss on distinguishment of
debt, net (0.03) - -
-------- ------ ------
Diluted earnings per common share $ 1.76 $ 1.03 $ 0.31
======== ====== ======
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
GLOBAL MARINE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
($ in millions)
ASSETS
<CAPTION>
December 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 2) $ 78.9 $ 92.9
Marketable securities (Note 2) 1.7 27.5
Accounts receivable, less allowance for doubtful
accounts of $2.8 in 1997 and $1.3 in 1996 152.2 104.4
Future income tax benefits (Note 8) 70.0 -
Costs incurred on turnkey drilling contracts
in progress 11.7 10.8
Prepaid expenses 3.1 8.0
Other current assets 10.1 2.9
-------- ------
Total current assets 327.7 246.5
Properties and equipment:
Rigs and drilling equipment, less accumulated
depreciation of $275.4 in 1997 and $224.4 in 1996 992.6 471.9
Oil and gas properties, full cost method, less
accumulated depreciation, depletion and
amortization of $29.7 in 1997 and $31.1 in 1996 6.4 5.5
-------- ------
Net properties and equipment 999.0 477.4
Future income tax benefits, net of valuation
allowance (Note 8) 79.4 70.0
Other assets 15.8 13.9
-------- ------
Total assets $1,421.9 $807.8
======== ======
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
GLOBAL MARINE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
($ in millions)
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
December 31,
-------------------
1997 1996
------ ------
<S> <C> <C>
Current liabilities:
Accounts payable $ 115.5 $ 53.5
Accrued compensation and related employee costs 30.5 19.0
Accrued income taxes 19.5 4.4
Other accrued liabilities 18.0 10.7
-------- ------
Total current liabilities 183.5 87.6
Long-term debt (Note 3) 399.4 225.0
Capital lease obligation (Note 4) 17.9 16.6
Other long-term liabilities 15.5 19.5
Commitments and contingencies (Note 4) - -
Shareholders' equity:
Preferred stock, $0.01 par value, 10 million shares
authorized, no shares issued or outstanding - -
Common stock, $0.10 par value, 300 million shares
authorized, 172,202,785 shares and 169,440,569
shares issued and outstanding at December 31, 1997
and 1996, respectively 17.2 16.9
Additional paid-in capital 310.1 274.5
Retained earnings 478.3 167.7
-------- ------
Total shareholders' equity 805.6 459.1
-------- ------
Total liabilities and shareholders' equity $1,421.9 $807.8
======== ======
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
GLOBAL MARINE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
<CAPTION>
Year Ended December 31,
--------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 310.6 $ 180.1 $ 51.9
Adjustments to reconcile net income to net
cash flow provided by operating activities:
Deferred income tax benefit (54.6) (70.0) -
Depreciation, depletion and amortization 55.1 40.9 31.0
Gains on sales of properties and equipment - (1.1) (14.7)
Extraordinary loss on debt extinguishment 4.5 - -
Increase in accounts receivable (49.6) (37.2) (7.1)
(Increase) decrease in costs incurred on
turnkey drilling contracts in progress (.9) (2.4) 10.1
(Increase) decrease in other current assets (2.3) (7.8) 7.2
Increase (decrease) in accounts payable 62.0 19.6 (5.6)
Increase in accrued interest 5.4 - -
Increase in other accrued liabilities 31.2 19.0 3.0
Other, net (2.1) (1.9) (.8)
------- ------ ------
Net cash flow provided by operating activities 359.3 139.2 75.0
Cash flows from investing activities:
Capital expenditures (580.3) (118.3) (73.5)
Purchases of held-to-maturity securities (20.8) (75.3) (124.3)
Proceeds from maturities of held-to-maturity
securities 46.6 101.2 95.5
Proceeds from sales of properties and equipment 3.6 3.7 23.9
------- ------- -------
Net cash flow used in investing activities (550.9) (88.7) (78.4)
Cash flows from financing activities:
Proceeds from issuance of long-term debt 599.3 - -
Reductions of long-term debt (429.5) - -
Proceeds from exercise of employee stock options 10.0 9.2 3.3
Debt issue costs (2.2) - -
------- ------- ------
Net cash flow provided by financing activities 177.6 9.2 3.3
------- ------- -------
Increase (decrease) in cash and cash equivalents (14.0) 59.7 (.1)
Cash and cash equivalents at beginning of year 92.9 33.2 33.3
------- ------- -------
Cash and cash equivalents at end of year $ 78.9 $ 92.9 $ 33.2
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
GLOBAL MARINE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
($ in millions)
<CAPTION>
Retained
Additional Earnings
Common Stock Paid-in (Accumulated
----------------------
Shares Par Value Capital Deficit) Total
----------- --------- ---------- ----------- -----
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 164,408,185 $16.4 $260.2 $ (64.3) $212.3
Net income - - - 51.9 51.9
Exercise of employee stock options 1,615,299 .2 3.1 - 3.3
Stock issued under other employee
benefit plans 434,599 - 1.5 - 1.5
----------- ----- ------ ------- ------
Balance at December 31, 1995 166,458,083 16.6 264.8 (12.4) 269.0
Net income - - - 180.1 180.1
Exercise of employee stock options 2,963,567 .3 8.9 - 9.2
Stock issued under other employee
benefit plans 18,919 - .2 - .2
Income tax benefit from stock
option exercises - - .6 - .6
----------- ----- ------ ------ ------
Balance at December 31, 1996 169,440,569 16.9 274.5 167.7 459.1
Net income - - - 310.6 310.6
Exercise of employee stock options 2,636,527 .3 10.3 - 10.6
Stock issued under other employee
benefit plans 149,588 - 3.1 - 3.1
Stock canceled (23,899) - (.5) - (.5)
Income tax benefit from stock
option exercises - - 22.7 - 22.7
----------- ----- ------ ------ ------
Balance at December 31, 1997 172,202,785 $17.2 $310.1 $478.3 $805.6
=========== ===== ====== ====== ======
</TABLE>
See notes to consolidated financial statements.
<PAGE>
GLOBAL MARINE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Global Marine
Inc. and its majority-owned subsidiaries. Unless the context otherwise
requires, the term "Company" refers to Global Marine Inc. and its consolidated
subsidiaries. Intercompany accounts and transactions have been eliminated.
Cash Equivalents
Cash equivalents consist of all highly liquid debt instruments with remaining
maturities of three months or less at the time of purchase.
Properties and Depreciation
Rigs and Drilling Equipment. Capitalized costs of rigs and drilling equipment
include all costs incurred in the acquisition of capital assets including
allocations of interest costs incurred during periods that rigs are under
construction or refurbishment. Expenditures for maintenance and repairs are
charged to expense as incurred. Costs of property sold or retired and the
related accumulated depreciation are removed from the accounts; resulting gains
or losses are included in income.
Jackup drilling rigs are depreciated over initial lives of 25 years, with
salvage values of $0.5 million per rig. Semisubmersible drilling rigs and
drillships, other than the Glomar Explorer, are depreciated over initial
lives ranging from 10 to 20 years, with salvage values of $1.0 million per
rig. The Glomar Explorer, which is expected to enter the active fleet in April
1998, will be depreciated over the remainder of its 30-year lease, or
approximately 28.5 years, with no salvage value.
Oil and Gas Properties. The Company uses the full-cost method of accounting
for oil and gas exploration and development costs. Under this method of
accounting, the Company capitalizes all costs incurred in the acquisition,
exploration and development of oil and gas properties and amortizes such costs,
together with estimated future development and dismantlement costs, using the
units-of-production method.
Revenue Recognition
Contract drilling services are performed generally on a dayrate basis under
individual contracts to employ the Company's rigs. Such contracts extend
over a specified period of time or the time required to drill a specified well
or number of wells. Revenues from contract drilling services and the related
expenses are recognized on a per-day basis as the work progresses. Revenues
from turnkey drilling contracts, which are classified under drilling management
revenues, are derived from the design and execution of specific offshore
drilling programs, each at a fixed price to the oil and gas operator. Revenues
from each turnkey drilling contract and the related expenses are recognized
upon completion of the contract.
<PAGE>
Foreign Currency Translation
The U.S. dollar is the functional currency for all of the Company's operations.
Realized and unrealized foreign currency transaction gains and losses are
recorded in income.
The Company may be exposed to the risk of foreign currency exchange losses in
connection with its foreign operations. Such losses are the result of holding
net monetary assets (cash and receivables in excess of payables) denominated
in foreign currencies during periods of a strengthening U.S. dollar. The
Company's foreign exchange gains and losses, which are primarily attributable
to the British pound, have not been and are not expected to be material. This
is due to the fact that the Company's revenues are primarily denominated in
U.S. dollars, revenues in each foreign currency are approximately equal to
the Company's local expenses in that currency, and the Company does not
speculate in foreign currencies or maintain significant foreign currency cash
balances.
Stock-Based Compensation Plans
The Company accounts for its stock option and stock-based compensation plans
using the intrinsic-value method prescribed by Accounting Principles Board
("APB") Opinion No. 25. Accordingly, the Company computes compensation cost
for each employee stock option granted as the amount by which the quoted market
price of the Company's common stock on the date of grant exceeds the amount the
employee must pay to acquire the stock. The amount of compensation cost, if
any, is charged to income over the vesting period. With respect to
performance-based stock awards, under which the number of shares issued is
dependent on the attainment of certain long-term performance goals,
compensation expense is charged to income over the performance (vesting) period
but is adjusted for changes in the market price of the stock during the period.
(See Note 6.)
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
<PAGE>
NOTE 2 - INVESTMENTS
At December 31, 1997 and 1996, all of the Company's investments in cash
equivalents and marketable securities consisted of debt securities which were
classified as held-to-maturity and were carried at amortized cost. A summary
of the estimated fair values of investments as of December 31 follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
(In millions)
<S> <C> <C>
Cash equivalents:
Commercial paper $78.8 $ 86.3
Eurodollar time deposits 7.0 12.1
----- ------
$85.8 $ 98.4
===== ======
Marketable securities:
Eurodollar time deposits $ 1.5 $ 6.6
Certificates of deposit .2 .2
Commercial paper - 20.6
U.S. treasury obligations - .1
----- ------
$ 1.7 $ 27.5
===== ======
</TABLE>
The estimated fair values of investments approximated their carrying values;
therefore, there were no unrealized holding gains or losses as of December 31,
1997 or 1996. The estimated fair values of investments as of December 31
grouped by contractual maturities were as follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
(In millions)
<S> <C> <C>
Within three months or less $85.8 $ 98.4
After three months through one year 1.7 27.5
----- ------
$87.5 $125.9
===== ======
</TABLE>
As of December 31, 1997, $1.5 million of the Company's cash and short-term
investments collateralized outstanding operating letters of credit and was
restricted from use for general corporate purposes.
The following are investments in connection with certain of the Company's
nonqualified pension plans as of December 31, 1997 and 1996. The investments
were categorized as available-for-sale and were included in other assets at
December 31. Unrealized holding gains and losses for each year were not
material.
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
Cost Fair Value Cost Fair Value
---- ---------- ---- ----------
(In millions)
<S> <C> <C> <C> <C>
Money market mutual fund $4.0 $4.0 $1.9 $1.9
Bond mutual fund 1.0 1.0 0.9 0.9
Stock and bond mutual fund 0.8 0.9 0.7 0.8
---- ---- ---- ----
$5.8 $5.9 $3.5 $3.6
==== ==== ==== ====
</TABLE>
<PAGE>
NOTE 3 - LONG-TERM DEBT
Long-term debt as of December 31 consisted of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
(In millions)
<S> <C> <C>
7-1/8% Notes due 2007, net of discount $299.4
Borrowings under $240 milion bank revolving
credit facility 100.0
12-3/4% Senior Secured Notes due 1999 - $225.0
------ ------
Total long-term debt including current maturities 399.4 225.0
Less current maturities - -
------ ------
Long-term debt $399.4 $225.0
====== ======
</TABLE>
On September 15, 1997, the Company issued $300 million of 7-1/8% Notes due
2007 (the "7-1/8% Notes"). The cash proceeds from the issuance totaled $299.3
million, of which $200.0 million was used to pay all amounts then outstanding
under a $250 million bank revolving credit facility. Interest on the 7-1/8%
Notes is payable on March 1 and September 1 of each year. The Company may
redeem the 7-1/8% Notes in whole at any time, or in part from time to time,
at a price equal to 100% of the principal amount thereof plus accrued interest,
if any, to the date of redemption, plus a premium, if any, relating to the
then prevailing Treasury Yield and the remaining life of the notes.
On December 9, 1997, the Company terminated its $250 million bank revolving
credit facility and entered into a new five-year, unsecured revolving credit
facility with substantially the same group of banks under which the Company
may borrow up to $240 million at interest rates determinable at the time of
the borrowings. The unused portion of the credit facility is subject to an
annual commitment fee of twelve-hundredths of one percent. As of December 31,
1997, borrowings under the credit facility totaled $100.0 million, with an
annual interest rate of 6.325%.
On December 15, 1997, the Company redeemed the entire $223.9 million of
12-3/4% Senior Secured Notes due 1999 then outstanding at a price of 102
percent of principal, plus accrued interest. The total required payment was
$242.6 million, which was funded with cash on hand, including the balance of
the proceeds from the 7-1/8% Note issuance, together with $100 million drawn
under the $240 million bank revolving credit facility. The Company recorded
an extraordinary loss on the early debt extinguishment in the amount of $4.5
million, net of a $2.4 million income tax benefit.
On January 29, 1998, the Company entered into a new one-year unsecured
revolving credit facility in connection with the acquisition of the offshore
drilling rig, Stena Forth (see Note 4). Under the facility, the Company may
borrow up to $150 million at interest rates determinable at the time of the
borrowings. The unused portion of the credit facility is subject to an annual
commitment fee of one-tenth of one percent.
The 7-1/8% Note indenture contains limitations on the Company's ability to
incur indebtedness for borrowed money secured by certain liens and to engage
in certain sale/leaseback transactions, among other things. The bank credit
agreements contain similar limitations and also require the Company to
maintain minimum levels of net worth and interest coverage and limit the
Company's maximum debt as a percentage of capitalization.
<PAGE>
NOTE 4 - COMMITMENTS AND CONTINGENCIES
As of December 31, 1997, six of the offshore drilling rigs the Company used in
its turnkey drilling operations were subject to operating leases with initial
or remaining terms from 12 to 18 months, and the Company also had operating
leases for office buildings and equipment with remaining terms up to
approximately four years. In addition, at December 31, 1997, the Company had
under capital lease the offshore rig, Glomar Explorer, through 2026. Some of
the leases may be renewed at the Company's option, and some are subject to
rent revisions based on the Consumer Price Index or increases in building
operating costs. Rent expense for 1997, 1996, and 1995 was $149.2 million,
$85.8 million, and $42.0 million, respectively.
Future minimum rental payments for the Company's lease obligations as of
December 31, 1997, were as follows:
<TABLE>
<CAPTION>
Capital Operating
Lease Leases
------- ---------
(In millions)
<S> <C> <C>
Year ended December 31:
1998 $ .2 $81.8
1999 1.8 11.9
2000 1.8 1.0
2001 1.8 .6
2002 1.8 .1
Later years 42.3 -
----- -----
Total future minimum rental payments 49.7 $95.4
=====
Less amount representing imputed interest 31.6
-----
Present value of future minimum rental
payments under capital lease 18.1
Less current portion included in accrued
liabilities .2
-----
Long-term capital lease obligation $17.9
=====
</TABLE>
In January 1998 the Company entered into an agreement to purchase the offshore
drilling rig, Stena Forth, for a purchase price of $150 million. The Company
assumed operation of the rig at closing, which occurred on March 10,1998. The
Company financed the rig's purchase through borrowings under its bank credit
facilities.
In the first quarter of 1998 the Company entered into an agreement with a
shipyard to construct two dynamically-positioned deep-water drillships at a
cost of approximately $660 million. The new drillships, which are expected
to be completed in the fourth quarter of 1999 and the first quarter of 2000,
will be financed with internally generated funds and funds available under the
Company's existing bank credit facilities.
The Company is involved in various lawsuits resulting from personal injury and
property damage. In the opinion of management, resolution of these matters
will not have a material adverse effect on the Company's results of operations,
financial position or cash flows.
<PAGE>
NOTE 5 - FINANCIAL INSTRUMENTS
Concentrations of Credit Risk
The market for the Company's services and products is the offshore oil and
gas industry, and the Company's customers consist primarily of major
integrated international oil companies and independent oil and gas producers.
The Company performs ongoing credit evaluations of its customers and generally
does not require material collateral. The Company maintains reserves for
potential credit losses, and such losses have been within management's
expectations.
The Company had cash deposits concentrated primarily in five major banks at
December 31, 1997 and 1996. In addition, the Company had certificates of
deposit, commercial paper and Eurodollar time deposits with a variety of
companies and financial institutions with strong credit ratings. As a result
of the foregoing, the Company believes that credit risk in such instruments
is minimal.
Fair Values of Financial Instruments
The estimated fair value of the Company's $399.4 million carrying value of
long-term debt approximated $410.6 million at December 31, 1997. The estimated
fair value of the $225.0 million Senior Secured Notes, which were redeemed in
December 1997, approximated $241.8 million at December 31, 1996. Fair values
were based on quoted market prices or on the current rates offered to the
Company for debt of the same remaining maturity. The fair values of the
Company's cash equivalents, marketable securities, trade receivables and trade
payables approximated their carrying values due to the short-term nature of
these instruments (see Note 2).
NOTE 6 - STOCK-BASED COMPENSATION PLANS
At December 31, 1997, the Company had three stock-based compensation plans,
the Global Marine Inc. 1989 Stock Option and Incentive Plan (the "Employee
Plan"), the Global Marine Inc. 1994 Non-Employee Stock Option and Incentive
Plan (the "Non-Employee Plan"), and the Global Marine Inc. 1990 Non-Employee
Director Stock Option Plan (the "Director Plan"). Under the Employee Plan,
incentive and non-qualified options to purchase a fixed number of shares of the
Company's common stock ("stock options") may be granted to key employees; under
the Non-Employee Plan, non-qualified stock options may be granted to certain
non-employees; and under both plans, shares of common stock may be sold at
prices below the market price at the time of the sale. Under the Director
Plan, non-qualified stock options are automatically granted each year to
outside directors of the Company. One half of each stock option grant under
the Director Plan becomes exercisable one year after the grant date with the
remainder exercisable after two years. With respect to stock options under the
Employee Plan and Non-Employee Plan, one half of each grant before December 31,
1995 became exercisable beginning one year after the date of grant, with the
remainder exercisable after two years. Each grant after December 31, 1995
under the Employee Plan and Non-Employee Plan becomes exercisable in increments
of 25 percent each year beginning one year after the grant date. Stock options
under all plans expire ten years after the grant date and become exercisable in
full if more than 50 percent of the Company's outstanding common stock is
acquired by a
<PAGE>
person or a single group of persons. At December 31, 1997, 928,561 shares were
available for future grants under all plans.
Under the Employee Plan, the Company has offered for sale to certain key
employees at below-market prices a variable number of shares of common stock,
the exact number being dependent on the Company's attainment of certain
long-term performance goals ("performance-based stock awards").
Estimates of fair values of stock options and performance-based stock awards
on the grant dates in the disclosures which follow were computed using the
Black-Scholes option-pricing model based on the following assumptions:
1997 1996 1995
---- ---- ----
Expected price volatility range 48% 41% to 43% 43% to 45%
Risk-free interest rate range 5.8% to 6.6% 5.5% to 6.8% 5.7% to 7.4%
Expected dividends none none none
Expected life of stock options 5 years 5 years 5 years
Expected life of performance-based
stock awards 3 years 3 years 3 years
Stock Options
A summary of the status of stock options granted under all plans is presented
below:
<TABLE>
<CAPTION>
Number
Of Shares Weighted Average
Under Option Exercise Price
------------ ----------------
<S> <C> <C>
Shares under option at December 31, 1994 9,225,200 $3.12
Granted 2,236,500 $4.01
Exercised (1,615,299) $2.03
Canceled (11,000) $3.86
---------
Shares under option at December 31, 1995 9,835,401 $3.50
Granted 1,317,500 $11.33
Exercised (2,963,567) $3.13
Canceled (96,500) $6.01
---------
Shares under option at December 31, 1996 8,092,834 $4.88
Granted 1,011,400 $22.91
Exercised (2,636,527) $4.02
Canceled (37,900) $15.51
---------
Shares under option at December 31, 1997 6,429,807 $8.01
=========
</TABLE>
<PAGE>
Number
Of Shares Weighted Average
Under Option Exercise Price
------------ ----------------
Options exercisable at December 31,
1995 6,753,201 $3.24
1996 5,887,559 $3.59
1997 4,457,868 $3.92
All stock options granted in 1995 had exercise prices equal to the market price
of the Company's common stock on the day of grant and a weighted average fair
value of $1.97 per share on the grant date. In 1996, the Company granted to a
new employee 42,000 stock options with a weighted average exercise price of
$6.81 per share, which was less than the market price of the stock on the date
of grant, and a weighted average fair value of $11.01 per share. All other
stock options granted in 1996 and all stock options granted in 1997 had
exercise prices equal to the market price of the Company's common stock on the
date of grant and had a grant-date weighted average fair value of $5.21 per
share in 1996 and $11.37 per share in 1997.
The following table summarizes information with respect to stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------- ----------------------------
Weighted
Range of Number Average Weighted Number Weighted
Exercise Outstanding Remaining Average Exercisable Average
Prices at 12/31/97 Contractual Life Exercise Price at 12/31/97 Exercise Price
- -------- ----------- ---------------- -------------- ----------------------------
<C> <C> <C> <C> <C> <C>
$0.56 to $2.75 833,862 2.7 years $1.19 833,862 $1.19
$3.00 to $5.63 3,418,039 5.3 years $4.18 3,418,039 $4.18
$6.69 to $10.25 925,092 8.1 years $9.10 160,342 $8.28
$14.56 to $20.75 1,014,914 9.1 years $20.23 45,625 $19.59
$28.75 to $34.19 237,900 9.7 years $30.59 - -
--------- ---------
6,429,807 6.1 years $8.01 4,457,868 $3.92
========= =========
</TABLE>
Performance-Based Stock Awards
Under the Employee Plan, the Company has offered to sell shares of Company
stock to certain key employees at a price of $0.10 per share, the exact number
of shares that each employee will be allowed to purchase being dependent on
Company performance over three-year periods as measured against performance
goals with respect to cash flow, earnings per share, and stock price. The
performance period applicable to each offer ends on December 31 of the second
full year following the year of the grant. A summary of the status of
performance-based stock awards is presented below:
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Number of contingent shares at beginning
of year 593,750 462,500 200,000
Granted 68,600 131,250 262,500
Issued (141,098) - -
Forfeited/canceled (92,584) - -
------- ------- -------
Number of contingent shares at end of year 428,668 593,750 462,500
======= ======= =======
Shares vested at December 31 252,777 200,000 -
Fair value at grant date $20.67 $9.23 $3.54
</TABLE>
Pro Forma Disclosures
As discussed in Note 1 under "Stock-Based Compensation Plans," the Company
accounts for its stock-based compensation plans under APB Opinion No. 25.
Accordingly, no compensation cost has been recognized for those stock options
with exercise prices equal to the market price of the stock on the date of
grant. The amount of compensation cost charged against income for the
Company's performance-based stock awards was $6.3 million in 1997, $5.9 million
in 1996, and $0.5 million in 1995. Had compensation cost for the Company's
stock-based compensation plans been determined based on fair values as of the
dates of grant, the Company's net income and earnings per share would have been
reported as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(In millions, except per share amounts)
<S> <S> <C> <C> <C>
Net income: As reported $310.6 $180.1 $ 51.9
Pro forma $311.5 $178.4 $ 50.1
Basic earnings per share: As reported $ 1.81 $ 1.07 $ 0.31
Pro forma $ 1.82 $ 1.06 $ 0.30
Diluted earnings per share: As reported $ 1.76 $ 1.03 $ 0.31
Pro forma $ 1.77 $ 1.02 $ 0.30
</TABLE>
The pro forma figures above may not be representative of pro forma amounts in
future years.
NOTE 7 - RETIREMENT PLANS
Pensions
The Company has defined benefit pension plans covering substantially all of
its employees. For the most part, benefits are based on the employee's length
of service and average earnings for the five highest consecutive calendar years
of compensation during the last fifteen years of service. Substantially all
benefits are paid from funds previously provided to trustees. The Company is
the sole contributor to the
<PAGE>
plans, and its funding objective is to fund participants' benefits under the
plans as they accrue, taking into consideration future salary increases. The
components of net pension cost were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(In millions)
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 2.7 $ 2.6 $ 1.9
Interest cost on projected benefit obligation 5.6 5.0 4.1
Actual return on plan assets (10.0) (6.2) (9.5)
Net amortization and deferral 5.3 3.0 6.7
------ ----- -----
Net pension cost $ 3.6 $ 4.4 $ 3.2
====== ===== =====
</TABLE>
The following table sets forth the funded status of the plans by plan type
(for federal income tax reporting purposes) and the amounts recognized in the
Company's consolidated balance sheet as of December 31:
<TABLE>
<CAPTION>
1997 1996
-------------------------- -------------------------
Qualified Nonqualified Qualified Nonqualified
--------- ------------- --------- ------------
(In millions)
<S> <C> <C> <C> <C>
Actuarial present value of plan benefits:
Vested $ 59.0 $ 9.9 $49.5 $ 8.7
Nonvested 4.9 0.8 3.7 .5
------ ----- ----- -----
Accumulated benefit obligation 63.9 10.7 53.2 9.2
Effect of projected salary increases 11.3 1.5 9.0 1.5
------ ----- ----- -----
Projected benefit obligation 75.2 12.2 62.2 10.7
Plan assets at fair value 66.5 5.7 54.9 3.4
------ ----- ----- -----
Projected benefit obligation in
excess of plan assets 8.7 6.5 7.3 7.3
Unrecognized net loss (11.2) (2.1) (7.2) (2.7)
------ ----- ----- -----
(Prepaid) accrued pension cost $ (2.5) $ 4.4 $ .1 $ 4.6
====== ===== ===== =====
</TABLE>
Plan assets consist primarily of listed stocks and bonds.
The Company has established grantor trusts to provide funding for the benefits
payable under certain of the nonqualified plans. The trusts are irrevocable,
and grantor trust assets, which are excluded from plan assets in the table
above, can be used only to pay such benefits, with certain exceptions. Fair
value of the grantor trust assets totaled $5.9 million and $3.6 million at
December 31, 1997 and 1996, respectively, and consisted of a money market
mutual fund, a bond mutual fund, and a stock and bond mutual fund. Grantor
trust assets are included in other assets on the consolidated balance sheet.
The expected long-term rate of return on plan assets used to compute pension
cost was 9.0 percent for 1997, 1996, and 1995. The assumed rate of increase
in future compensation levels ranged from 5.5 percent to 6.5 percent for each
of 1997, 1996, and 1995. The discount rate used to compute the actuarial
present value of the projected benefit obligation was 7.0 percent for 1997,
7.5 percent for 1996 and 7.25 percent for 1995.
<PAGE>
The Company has a defined contribution savings plan in which substantially
all of the Company's domestic employees are eligible to participate. Company
contributions to the savings plan are based on the amount of employee
contributions. Charges to expense with respect to this plan totaled $0.9
million for 1997, $0.8 million for 1996 and $0.6 million for 1995.
Other Postretirement Benefits
The Company provides term life insurance to retirees and, for a period
generally ending two years following retirement, health care benefits to
retirees and their covered dependents. Generally, employees who have reached
the age of 55 and have rendered a minimum of five years of service are eligible
for such retirement benefits. For the most part, health care benefits are
contributory while life insurance benefits are noncontributory.
Net postretirement life insurance and health care cost consisted of the
following components:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(In millions)
<S> <C> <C> <C>
Service cost - benefits earned during the period $0.1 $0.1 $0.1
Interest cost on accumulated postretirement
benefit obligation 0.2 0.2 0.2
---- ---- ----
Net postretirement life insurance and health
care cost $0.3 $0.3 $0.3
==== ==== ====
</TABLE>
Benefits under the Company's postretirement life insurance and health care
plans are not funded. The status of the plans as of December 31 was as
follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
(In millions)
<S> <C> <C>
Actuarial present value of accumulated postretirement
benefit obligation:
Retirees and dependents $1.2 $1.2
Active employees eligible for benefits 0.6 0.5
Active employees not yet eligible for benefits 0.9 0.8
Unrecognized net gain 0.1 0.1
---- ----
Accrued postretirement life insurance and health care
liability $2.8 $2.6
==== ====
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 8.0 percent for 1998, gradually
declining to 6.0 percent by the year 2015 and remaining at that level
thereafter. The effect of a one-percentage point increase in the assumed
health care cost trend rate for each future year on (i) the portion of the
accumulated postretirement benefit obligation applicable to health care
benefits as of December 31, 1997 and (ii) the net postretirement health care
cost for the year then ended would be immaterial. The assumed discount rate
used in determining the accumulated postretirement benefit obligation was 7.0
percent for 1997 and 1996.
<PAGE>
NOTE 8 - INCOME TAXES
The provision (benefit) for income taxes consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(In millions)
<S> <C> <C> <C>
Current - Foreign $ 19.0 $ 7.0 $ 2.3
- U.S. federal 14.3 2.4 .9
- State .2 .2 -
------ ------ -----
33.5 9.6 3.2
Deferred - U.S. federal (54.6) (70.0) -
------ ------ -----
Provision (benefit) for income taxes $(21.1) $(60.4) $ 3.2
====== ====== =====
</TABLE>
A reconciliation of the differences between taxes on income before
extraordinary item computed at the U.S. federal statutory rate of 35 percent
and the Company's reported provision (benefit) for income taxes follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
($ in millions)
<S> <C> <C> <C>
Income tax provision at statutory rate $ 102.9 $ 41.9 $ 19.3
Effect of foreign operations realignment 99.6 - -
Decrease in valuation allowance recorded
to paid-in capital 22.6 - -
Foreign income taxes, net of U.S. benefit 12.4 4.5 1.5
Other, net 1.0 (.6) (2.2)
Net increase in NOL and other carryforwards (13.2) (2.9) (1.4)
Decrease in the valuation allowance (246.4) (103.3) (14.0)
------- ------- ------
Provision (benefit) for income taxes $ (21.1) $ (60.4) $ 3.2
======= ======== ======
Effective tax rate (7%) (1) (50%) (1) 6% (1)
____________________
(1) Excluding the tax effects of a realignment of the Company's foreign
operations in 1997 and a decrease in the valuation allowance in 1997,
1996 and 1995, the effective tax rate would have been 35% in 1997, 36% in
1996 and 31% in 1995.
</TABLE>
<PAGE>
Deferred tax assets and liabilities are recorded in recognition of the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. The significant components of
the Company's deferred tax assets and liabilities as of December 31 were as
follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
(In millions)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 195.2 $ 368.5
Investment and alternative minimum tax
credit carryforwards 29.3 25.4
Accrued expenses not currently deductible 9.5 10.5
Other 8.8 2.0
------- -------
242.8 406.4
Less: Valuation allowance (32.9) (279.3)
------- -------
Deferred tax assets, net of valuation allowance 209.9 127.1
Deferred tax liabilities:
Depreciation and depletion for tax in excess of
book expense 46.7 32.5
Tax benefit transfers 10.9 19.6
Income recognized for book in excess of tax 2.3 4.0
Other .6 1.0
------- -------
Total deferred tax liabilities 60.5 57.1
------- -------
Net future income tax benefit recognized in
consolidated balance sheet $ 149.4 $ 70.0
======= =======
</TABLE>
At December 31, 1997, the Company had $413.1 million of U.S. NOL carryforwards,
$16.8 million of non-expiring alternative minimum tax credit carryforwards,
and $9.1 million of investment tax credit ("ITC") carryforwards which can be
used to reduce the Company's U.S. federal income taxes payable in future years.
The NOL and ITC carryforwards expire as follows:
<TABLE>
<CAPTION>
NOL ITC
----- -----
(In millions)
<S> <C> <C>
Year ended December 31:
1998 $ 4.1
1999 4.7
2000 .3
2005 $271.3 -
2006 66.2 -
2007 21.5 -
2008 35.8 -
2009 18.3 -
------ -----
$413.1 $ 9.1
====== =====
</TABLE>
In addition, the Company had $168.7 million of non-expiring foreign NOL
carryforwards at December 31, 1997.
<PAGE>
The Company's U.S. NOL and ITC carryforwards are subject to review and
potential disallowance by the Internal Revenue Service ("IRS") upon audit of
the Company's federal income tax returns. Section 382 of the Internal Revenue
Code of 1986, as amended, may impair the future availability of the NOL and
ITC carryforwards if there is a change in ownership of more than 50 percent
of the Company's common stock. This limitation, if it applied, would limit
the utilization of the NOL and ITC carryforwards in each taxable year to an
amount equal to the product of the federal long-term tax-exempt bond rate
prescribed monthly by the IRS and the fair market value of all the Company's
stock at the time of the ownership change. The interpretation of Section 382
is subject to numerous uncertainties. Accordingly, while the Company believes
its carryforwards are available to it without limitation, such availability is
not certain, nor is it certain that such carryforwards, if presently available
without limitation, will continue to be available without limitation.
NOTE 9 - EARNINGS PER SHARE
In 1997 the Company adopted the provisions of SFAS No. 128, "Earnings per
Share." All prior periods presented have been restated to conform to the new
requirements. A reconciliation of the numerators and denominators of the
basic and diluted per-share computations for income before extraordinary item
follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
($ in millions, except per share amounts)
<S> <C> <C> <C>
Income (numerator):
Income before extraordinary item $315.1 $180.1 $51.9
====== ====== =====
Shares (denominator):
Shares - Basic 171,159,212 167,915,661 165,142,881
Effect of employee stock options 5,002,765 6,373,951 4,298,993
----------- ----------- -----------
Shares - Diluted 176,161,977 174,289,612 169,441,874
=========== =========== ===========
Earnings per share before
extraordinary item:
Basic $1.84 $1.07 $0.31
===== ===== =====
Diluted $1.79 $1.03 $0.31
===== ===== =====
</TABLE>
NOTE 10 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash interest payments totaled $29.7 million in 1997 and $28.7 million in each
of 1996 and 1995. Cash payments for income taxes totaled $18.1 million in
1997, $7.0 million in 1996, and $3.6 million in 1995.
In 1996 the Company financed the acquisition of the Glomar Explorer drillship
by assuming a $16.0 million capital lease obligation.
<PAGE>
NOTE 11 - INDUSTRY SEGMENT INFORMATION
The Company provides offshore drilling services on a dayrate basis principally
in the U.S. Gulf of Mexico, the North Sea, and offshore West Africa and on a
turnkey basis primarily in the U.S. Gulf of Mexico. In addition, the Company
has oil and gas production interests principally in the U.S. Gulf of Mexico.
In the industry segment data which follows, revenues from turnkey drilling
services are included in drilling management services. Intersegment revenues
are recorded at transfer prices which are intended to approximate the prices
charged to unaffiliated customers and have been eliminated from consolidated
revenues. Operating income consists of revenues less the related operating
costs and expenses, excluding interest and unallocated corporate expenses.
Adjustments and eliminations in part reduce operating income attributable to
drilling management services for part or all of the profit on each turnkey
well drilled on properties in which the Company has economic interests.
As part of the Company's strategy to increase its ability to respond to
expanding opportunities in foreign markets, in December 1997 the Company
realigned its foreign operations by transferring substantially all of its rigs
and other assets operating outside the United States to its wholly-owned
foreign subsidiaries. All amounts in the table which follows relate to
domestic operations except where otherwise indicated.
<PAGE>
<TABLE>
<CAPTION>
Drilling
Contract Management Adjustments and
Drilling Services Oil and Gas Corporate Eliminations Consolidated
-------- ---------- ----------- --------- --------------- ------------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
Revenues from
unaffiliated customers
1997 $579.4 $480.5 $ 7.2 $ - $ - $1,067.1
1996 362.5 305.3 12.9 - - 680.7
1995 248.9 209.3 9.8 - - 468.0
Intersegment revenues
1997 5.3 2.1 - - (7.4) -
1996 5.7 1.0 - - (6.7) -
1995 9.5 3.5 - - (13.0) -
Total revenues
1997 584.7 482.6 7.2 - (7.4) 1,067.1
1996 368.2 306.3 12.9 - (6.7) 680.7
1995 258.4 212.8 9.8 - (13.0) 468.0
Operating income
1997 274.8 51.0 2.1 (21.8) (1.0) 305.1
1996 125.4 29.4 6.8 (19.3) (1.5) 140.8
1995 54.6 17.3 3.4 (15.0) - 60.3
Depreciation, depletion
and amortization
1997 51.7 0.3 1.8 1.3 - 55.1
1996 36.3 0.1 3.5 1.0 - 40.9
1995 27.4 - 3.0 0.6 - 31.0
Capital expenditures
1997 575.0 0.4 2.7 2.2 - 580.3
1996 115.4 (1) 0.4 1.5 1.0 - 118.3
1995 66.0 0.3 5.1 2.1 - 73.5
Identifiable assets
1997 - Foreign 753.8 7.5 - 0.3 - 761.6
1997 - Domestic 318.4 65.2 8.4 268.3 - 660.3
1996 545.9 37.8 8.2 215.9 - 807.8
1995 456.2 22.0 10.6 74.2 - 563.0
________________
(1) Excludes the $16.0 million acquisition of the Glomar Explorer through
assumption of a capital lease.
</TABLE>
No single customer provided more than ten percent of revenues for 1997 or
1996. In 1995 one customer provided $40.9 million of contract drilling
revenues and $10.3 million of drilling management revenues.
<PAGE>
Export sales by geographic areas were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(In millions)
<S> <C> <C> <C>
West Africa $254.6 $155.9 $ 68.2
North Sea 84.2 101.2 80.0
Trinidad 14.4 5.8 11.9
Far East and Australia - - 13.3
Other 17.1 8.7 20.3
------ ------ ------
$370.3 $271.6 $193.7
====== ====== ======
</TABLE>
<PAGE>
CONSOLIDATED SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
(In millions, except per share data)
<TABLE>
<CAPTION>
1997 1996
------------------------------------- -------------------------------------
Fourth Third Second First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $319.3 $304.4 $233.1 $210.3 $219.9 $177.9 $159.9 $123.0
Operating income 93.1 87.7 66.9 57.4 48.5 38.9 32.4 21.0
Income before
extraordinary item 58.8 93.4 84.1 78.8 110.2 30.9 24.1 14.9
Net income 54.3 93.4 84.1 78.8 110.2 30.9 24.1 14.9
Basic earnings per share
before extraordinary
item (1) 0.34 0.54 0.49 0.46 0.65 0.18 0.14 0.09
Diluted earnings per share
before extraordinary
item (1) 0.34 0.53 0.48 0.45 0.63 0.18 0.14 0.09
Net income includes the
following special items:
Benefit (provision) for
income taxes (2) (25.0) 15.0 25.0 30.0 70.0 - - -
Extraordinary loss on
debt extinguishment (4.5) - - - - - - -
Gain on sale of oil and
gas properties - - - - - - - 1.1
Price ranges of
common stock:
High 36-13/16 35 25 25-1/4 21-3/4 16-7/8 16-1/8 11
Low 21-5/8 23-1/2 17-7/8 17-1/4 15-1/2 13-1/8 10 7-5/8
_______________
(1) The Company adopted SFAS No. 128, "Earnings per Share," in the fourth
quarter of 1997. Prior periods presented have been restated to conform
to the new requirements.
(2) Adjustments to income taxes in the fourth quarter of 1997 are for the
tax effects of a realignment of the Company's foreign operations,
partially offset by the net recognition of the income tax benefits of
prior years' net operating loss carryforwards. Adjustments to income taxes
in all other quarters indicated are for net recognition of the income tax
benefits of prior years' net operating loss carryforwards.
</TABLE>
The Company did not declare any dividends on its common stock in either 1997
or 1996.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Global Marine Inc.
Our report on the consolidated financial statements of Global Marine Inc. and
subsidiaries is included on page 25 of this Form 10-K. In connection with
our audits of such financial statements, we have also audited the related
financial statement schedule listed in the index on page 53 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to
be included therein.
/s/ Coopers & Lybrand L.L.P.
Houston, Texas
March 11, 1998
<PAGE>
<TABLE>
GLOBAL MARINE INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In millions)
<CAPTION>
Additions
-----------------------
Balance at Charged to Charged to Balance
Beginning Costs and Other at End
Description of Year Expenses Accounts Deductions of Year
- ---------------------------- ---------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997:
Allowance for doubtful
accounts receivable $ 1.3 $ 1.7 $ - $ .2 $ 2.8
Year ended December 31, 1996:
Allowance for doubtful
accounts receivable $ 1.1 $ .5 $ - $ .3 $ 1.3
Year ended December 31, 1995:
Allowance for doubtful
accounts receivable $ 1.2 $ .1 $ - $ .2 $ 1.1
</TABLE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
As permitted by General Instruction G, the information called for by this item
with respect to the Company's directors, and the information required by this
item and Item 405 of Regulation S-K with respect to filings under Section 16
of the 1934 Securities Exchange Act, is incorporated by reference from the
Company's definitive proxy statement to be filed pursuant to Regulation 14A
within 120 days after the end of the last fiscal year. Information with
respect to the Company's executive officers required by Item 401 of Regulation
S-K is set forth in Part I of this Annual Report on Form 10-K under the caption
"Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
As permitted by General Instruction G, the information called for by this item
is incorporated by reference from the Company's definitive proxy statement to
be filed pursuant to Regulation 14A within 120 days after the end of the last
fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As permitted by General Instruction G, the information called for by this item
is incorporated by reference from the Company's definitive proxy statement to
be filed pursuant to Regulation 14A within 120 days after the end of the last
fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As permitted by General Instruction G, the information called for by this item
is incorporated by reference from the Company's definitive proxy statement to
be filed pursuant to Regulation 14A within 120 days after the end of the last
fiscal year.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Page
(a) Financial Statements, Schedules and Exhibits
(1) Financial Statements
Report of Independent Accountants 25
Consolidated Statement of Operations 27
Consolidated Balance Sheet 28
Consolidated Statement of Cash Flows 30
Consolidated Statement of Shareholders' Equity 31
Notes to Consolidated Financial Statements 32
(2) Financial Statement Schedule
Report of Independent Accountants 50
Schedule II - Valuation and Qualifying Accounts 51
Schedules other than those listed above are omitted for the
reason that they are not applicable.
(3) Exhibits
The following are included as exhibits to this Annual Report
on Form 10-K and are filed herewith unless otherwise indicated.
Exhibits incorporated by reference are so indicated by
parenthetical information.
3(i).1 Restated Certificate of Incorporation of the Company as filed
with the Secretary of State of Delaware on March 15, 1989,
effective March 16, 1989. (Incorporated herein by this reference
to Exhibit 3(i).1 of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993.)
3(i).2 Certificate of Amendment of the Restated Certificate of
Incorporation of the Company as filed with the Secretary of
State of Delaware on May 11, 1990. (Incorporated herein by this
reference to Exhibit 3(i).2 of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1993.)
3(i).3 Certificate of Correction of the Restated Certificate of
Incorporation of the Company as filed with the Secretary of
State of Delaware on September 25, 1990. (Incorporated herein
by this reference to Exhibit 3(i).3 of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993.)
3(i).4 Certificate of Amendment of the Restated Certificate of
Incorporation of the Company as filed with the Secretary of
State of Delaware on May 11, 1992. (Incorporated herein by this
reference to Exhibit 3(i).4 of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1993.)
3(i).5 Certificate of Amendment of the Restated Certificate of
Incorporation of the Company as
<PAGE>
filed with the Secretary of State of Delaware on May 12, 1994.
(Incorporated herein by this reference to Exhibit 4.5 of the
Registrant's Registration Statement on Form S-3 (No. 33-53691)
filed with the Commission on May 18, 1994.)
3(ii).1 By-laws of the Company as amended through November 14, 1996.
(Incorporated herein by this reference to Exhibit 3(ii).2 of
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996.)
4.1 Indenture dated as of September 1, 1997, between Global Marine
Inc. and Wilmington Trust Company, as Trustee, relating to Debt
Securities of the Registrant. (Incorporated herein by this
reference to Exhibit 4.1 of the Registrant's Registration
Statement on Form S-4 (No. 333-39033) filed with the Commission
on October 30, 1997.)
4.2 Purchase Agreement dated as of September 10, 1997, between
Global Marine Inc. and Salomon Brothers Inc, individually and
as representative of the Initial Purchasers of the Registrant's
7-1/8% Notes Due 2007. (Incorporated herein by this reference
to Exhibit 4.2 of the Registrant's Registration Statement on
Form S-4 (No. 333-39033) filed with the Commission on October 30,
1997.)
4.3 Registration Rights Agreement dated September 15, 1997, between
Global Marine Inc. and Salomon Brothers Inc, individually and
as representative of the Initial Purchasers of the Registrant's
7-1/8% Notes Due 2007. (Incorporated herein by this reference
to Exhibit 4.3 of the Registrant's Registration Statement on
Form S-4 (No. 333-39033) filed with the Commission on October 30,
1997.)
4.4 Form of 7-1/8% Exchange Note Due 2007. (Incorporated herein by
this reference to Exhibit 4.4 of Amendment No. 1 to the
Registrant's Registration Statement on Form S-4 (No. 333-39033)
filed with the Commission on February 3, 1998.)
4.5 Terms of 7-1/8% Notes Due 2007. (Incorporated herein by this
reference to Exhibit 4.5 of the Registrant's Registration
Statement on Form S-4 (No. 333-39033) filed with the Commission
on October 30, 1997.)
10.1 Second Amended and Restated Credit Agreement among Global Marine
Inc., Various Lending Institutions, and Bankers Trust Company,
as Administrative Agent, Societe Generale, Southwest Agency, as
Documentation Agent, and Skandinaviska Enskilda Banken AB (publ)
and Den Norske Bank ASA, New York Branch, as Co-Agents, dated
as of December 9, 1997. (Incorporated herein by reference to
Exhibit 99.3 of Amendment No.1 to the Registrant's Registration
Statement on Form S-4 (No. 333-39033) filed with the Commission
on February 3, 1998.)
10.2 Credit Agreement among Global Marine Inc., Various Lending
Institutions, and Bankers Trust Company, as Administrative Agent,
ABN AMRO Bank, Houston Agency, as Syndication Agent, and Societe
Generale, Southwest Agency, as Documentation Agent, dated as of
January 29, 1998. (Incorporated herein by reference to Exhibit
99.4 of Amendment No. 1 to the Registrant's Registration
Statement on Form S-4 (No. 333-39033) filed with the Commission
on February 3, 1998.)
<PAGE>
10.3 Memorandum of Agreement, dated June 6, 1993, between Global
Marine Inc. and Transocean Drilling AS, and Amendment No. 1
thereto dated June 16, 1993. (Incorporated herein by this
reference to Exhibit 99.1 of the Registrant's Registration
Statement on Form S-3 (No. 33-65272) filed with the Commission
on June 30, 1993.)
10.4 Letter of Intent in Order to Form a Joint Venture, dated June 6,
1993, between Global Marine Inc. and Transocean Drilling AS.
(Incorporated herein by this reference to Exhibit 99.2 of the
Registrant's Registration Statement on Form S-3 (No. 33-65272)
filed with the Commission on June 30, 1993.)
10.5 Purchase and Sale Agreement, dated August 24, 1993, between
Global Marine Inc. and Transocean Drilling AS. (Incorporated
herein by this reference to Exhibit 10.3 of the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1993.)
10.6 Management Agreement (relating to Glomar Moray Firth I), dated
September 10, 1993, between Global Marine Nautilus Inc. and
Transocean Drilling AS. (Incorporated herein by this reference
to Exhibit 10.4 of the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1993.)
10.7 Management Agreement (relating to Transocean No. 5), dated
September 10, 1993, between Global Marine Nautilus Inc. and
Transocean Drilling AS. (Incorporated herein by this reference
to Exhibit to 10.5 of the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1993.)
10.8 Bareboat Charter Agreement, dated July 2, 1996, between the
United States of America and Global Marine Capital Investments
Inc. (Incorporated herein by this reference to Exhibit 10.1 of
the Registrant's Current Report on Form 8-K dated August 1,
1996.)
* 10.9 Letter Employment Agreement dated February 14, 1995, between
the Company and C. Russell Luigs. (Incorporated herein by this
reference to Exhibit 10.7 of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994.)
* 10.10 Consulting Agreement dated February 14, 1986, between Challenger
Minerals Inc. and Donald B. Brown. (Incorporated herein by this
reference to Exhibit 10.2 of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1987.)
* 10.11 Form of Letter Severance Agreement dated February 7, 1989,
between the Company and six executive officers, respectively.
(Incorporated herein by this reference to Exhibit 10.5 of the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1988.)
* 10.12 Letter Severance Agreement dated May 7, 1992, between the
Company and one executive officer. (Incorporated herein by
this reference to Exhibit 10.5 of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1992.)
* 10.13 Letter Severance Agreement dated February 20, 1996, between the
Company and an executive officer. (Incorporated herein by this
reference to Exhibit 10.1 of the Registrant's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1997.)
<PAGE>
* 10.14 Global Marine Inc. 1989 Stock Option and Incentive Plan.
(Incorporated herein by this reference to Exhibit 10.6 of the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1988.)
* 10.15 First Amendment to Global Marine Inc. 1989 Stock Option and
Incentive Plan. (Incorporated herein by this reference to
Exhibit 10.6 of the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1990.)
* 10.16 Second Amendment to Global Marine Inc. 1989 Stock Option and
Incentive Plan. (Incorporated herein by this reference to
Exhibit 10.7 of the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1991.)
* 10.17 Third Amendment to Global Marine Inc. 1989 Stock Option and
Incentive Plan. (Incorporated herein by this reference to
Exhibit 10.19 of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993.)
* 10.18 Fourth Amendment to Global Marine Inc. 1989 Stock Option and
Incentive Plan. (Incorporated herein by this reference to
Exhibit 10.16 of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1994.)
* 10.19 Fifth Amendment to Global Marine Inc. 1989 Stock Option and
Incentive Plan. (Incorporated herein by this reference to
Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1996.)
* 10.20 Sixth Amendment to Global Marine Inc. 1989 Stock Option and
Incentive Plan. (Incorporated herein by this reference to
Exhibit 10.18 of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1996.)
* 10.21 Form of Incentive Stock Sale Agreement dated February 11, 1997,
between the Company and an executive officer. (Incorporated
herein by this reference to Exhibit 10.19 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1996.)
* 10.22 Form of Performance Stock Memorandum dated June 7, 1994,
regarding conditional opportunity to acquire Company stock
granted to six executive officers, respectively. (Incorporated
herein by this reference to Exhibit 10.1 of the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1994.)
* 10.23 Form of Performance Stock Memorandum dated February 14, 1995,
regarding conditional opportunity to acquire Company stock
granted to six executive officers, respectively. (Incorporated
herein by this reference to Exhibit 10.20 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994.)
* 10.24 Form of Performance Stock Memorandum dated February 20, 1996,
regarding conditional opportunity to acquire Company stock
granted to six executive officers, respectively. (Incorporated
herein by this reference to Exhibit 10.21 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1995.)
* 10.25 Form of Performance Stock Memorandum dated February 11, 1997,
regarding conditional
<PAGE>
opportunity to acquire Company stock granted to six executive
officers, respectively. (Incorporated herein by this reference
to Exhibit 10.24 of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1996.)
* 10.26 Performance Criteria for Compensation Intended to Qualify as
"Performance-Based Compensation" Under Section 162(m) of the
Internal Revenue Code. (Incorporated herein by this reference
to Exhibit 10.2 of the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996.)
* 10.27 Executive Life Insurance Plan. (Incorporated herein by this
reference to Exhibit 10.5 of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1988.)
* 10.28 Global Marine Inc. Executive Supplemental Retirement Plan of
1990 (Incorporated herein by this reference to Exhibit 10.8 of
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990), as amended by First Amendment thereto
(Incorporated herein by this reference to Exhibit 10.1 of the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997).
* 10.29 Global Marine Executive Deferred Compensation Trust as
established effective January 1, 1995 (Incorporated herein by
this reference to Exhibit 10.24 of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1995), as
amended by First Amendment thereto (Incorporated herein by this
reference to Exhibit 10.2 of the Registrant's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1997).
* 10.30 Global Marine Benefit Equalization Retirement Plan effective
January 1, 1990. (Incorporated herein by this reference to
Exhibit 10.8 of the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1989.)
* 10.31 Global Marine Benefit Equalization Retirement Trust as
established effective January 1, 1990. (Incorporated herein
by this reference to Exhibit 10.9 of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1989.)
* 10.32 Form of Indemnification Agreement entered into between the
Company and each of its directors and officers. (Incorporated
herein by this reference to Exhibit 10.12 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1986.)
* 10.33 Resolution dated August 5, 1997, regarding Directors'
Compensation. (Incorporated herein by this reference to
Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997.)
* 10.34 Amended and Restated Retirement Plan for Outside Directors.
(Incorporated herein by this reference to Exhibit 10.12 of the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990.)
* 10.35 Global Marine Outside Director Deferred Compensation Trust as
established effective January 1, 1996. (Incorporated herein by
this reference to Exhibit 10.34 of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996.)
<PAGE>
* 10.36 Global Marine Inc. 1990 Non-Employee Director Stock Option Plan.
(Incorporated herein by this reference to Exhibit 10.18 of the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991.)
* 10.37 First Amendment to Global Marine Inc. 1990 Non-Employee Director
Stock Option Plan. (Incorporated herein by this reference to
Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995.)
* 10.38 Second Amendment to Global Marine Inc. 1990 Non-Employee
Director Stock Option Plan. (Incorporated herein by this
reference to Exhibit 10.37 of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996.)
* 10.39 Global Marine Inc. 1997 Management Incentive Award Plan.
(Incorporated herein by this reference to Exhibit 10.39 of the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996.)
* 10.40 Global Marine Inc. 1998 Management Incentive Award Plan.
21.1 List of Subsidiaries.
23.1 Consent of Coopers & Lybrand L.L.P., Independent Accountants.
27.1 Financial Data Schedule. (Exhibit 27.1 is being submitted as
an exhibit only in the electronic format of this Annual Report
on Form 10-K being submitted to the Securities and Exchange
Commission. Exhibit 27.1 shall not be deemed filed for purposes
of Section 11 of the Securities Act of 1933, Section 18 of the
Securities Exchange Act of 1934 or Section 323 of the Trust
Indenture Act, or otherwise be subject to the liabilities of
such sections, nor shall it be deemed a part of any registration
statement to which it relates.)
_______________
* Management contract or compensatory plan or arrangement.
The Company hereby undertakes, pursuant to Regulation S-K, Item 601(b),
paragraph (4) (iii), to furnish to the Securities and Exchange
Commission on request agreements defining the rights of holders of
long-term debt of the Company and its consolidated subsidiaries not
filed herewith in accordance with said Item.
(b) Reports on Form 8-K
The Company did not file any Current Reports on Form 8-K during the last
quarter of 1997.
<PAGE>
SIGNATURES REQUIRED FOR FORM 10-K
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
GLOBAL MARINE INC.
(REGISTRANT)
Date: March 13, 1998 By: GARY L. KOTT
----------------------------
(Gary L. Kott)
Senior Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
C.R. LUIGS
- ---------------------- Chairman of the Board March 13, 1998
(C.R. Luigs) and Chief Executive Officer
GARY L. KOTT
- ---------------------- Senior Vice President and March 13, 1998
(Gary L. Kott) Chief Financial Officer
(Principal Financial Officer)
THOMAS R. JOHNSON
- ---------------------- Vice President and Corporate
(Thoms R. Johnson) Controller March 13, 1998
(Principal Accounting Officer)
DONALD B. BROWN
- ---------------------- Director March 13, 1998
(Donald B. Brown)
E.J. CAMPBELL
- ---------------------- Director March 13, 1998
(E.J. Campbell)
THOMAS CASON
- ---------------------- Director March 13, 1998
(Thomas Cason)
JOHN M. GALVIN
- ---------------------- Director March 13, 1998
(John M. Galvin)
J.C. MARTIN
- ---------------------- Director March 13, 1998
(J.C. Martin)
E.R. MULLER
- ---------------------- Director March 13, 1998
(E.R. Muller)
PAUL J. POWERS
- ---------------------- Director March 13, 1998
(Paul J. Powers)
Director
- ----------------------
John G. Ryan)
BEN G. STREETMAN
- ---------------------- Director March 13, 1998
(Ben G. Streetman)
<PAGE>
EXHIBIT INDEX
_____________
A. Copies of exhibits listed below are submitted with this Annual Report
on Form 10-K, immediately following this index.
10.40 Global Marine Inc. 1998 Management Incentive Award Plan.
21.1 List of Subsidiaries.
23.1 Consent of Coopers & Lybrand L.L.P., Independent Accountants.
27.1 Financial Data Schedule. (Exhibit 27.1 is being submitted as
an exhibit only in the electronic format of this Annual Report
on Form 10-K being submitted to the Securities and Exchange
Commission. Exhibit 27.1 shall not be deemed filed for purposes
of Section 11 of the Securities Act of 1933, Section 18 of the
Securities Exchange Act of 1934 or Section 323 of the Trust
Indenture Act, or otherwise be subject to the liabilities of such
sections, nor shall it be deemed a part of any registration
statement to which it relates.)
B. All other exhibits listed in Item 14(a)(3) are incorporated by reference in
this Annual Report on Form 10-K, as stated in Item 14(a)(3). Descriptions
of these exhibits are incorporated herein by this reference to Item
14(a)(3) of this Report.
GLOBAL MARINE INC.
1998 MANAGEMENT INCENTIVE AWARD PLAN
PURPOSE AND ELIGIBLE PARTICIPANTS
The purpose of the 1998 Management Incentive Award Plan is to
provide incentive awards in respect of service during 1998 for
employees of Global Marine Inc. ("GMI") and its subsidiaries in
grade levels 34 and above, excluding the Chief Executive Officer of
GMI and other senior executives designated by the Chief Executive
Officer of GMI.
PLAN
Two incentive pools will be established for this plan in 1998.
There will be one pool ("Pool A") for employees of GMI and its
subsidiaries not included in Pool B, and another pool ("Pool B")
for employees of Challenger Minerals Inc. and any subsidiary or
division of a subsidiary of GMI deemed by the Compensation
Committee or the Board of Directors of GMI to be a "turnkey
subsidiary" or a "turnkey division." Pool A will be equal to 5% of
the amount by which the company's 1998 consolidated pretax profit
exceeds $385 million. Pool B will be equal to 5% of the 1998
pretax profit from the turnkey subsidiaries and turnkey divisions.
Consideration for individual awards under this plan will be given
to employees who are eligible to participate in this plan under the
provisions of this plan's first paragraph; provided, however, that
in cases of unusual merit consideration will be given to employees
below grade level 34 when recommended by the relevant subsidiary or
division President or corporate Vice President and approved by the
Chief Executive Officer of GMI. No individual will be eligible for
an award under Pool A of more than 65% of annual base salary.
Subject to approval by the Board of Directors of GMI, at its
discretion, incentive awards under Pool A will be paid as soon as
practicable after the company's 1998 results are final. Subject to
a determination to the contrary by the Board of Directors of GMI,
at its discretion, incentive awards under Pool B will be paid in
quarterly installments, each installment to be paid as soon as
practicable after the results for the turnkey subsidiaries and
turnkey divisions for the relevant 1998 quarter are final.
Incentive awards may be paid in cash or, at the discretion of the
Compensation Committee or the Board of Directors of GMI, in shares
of common stock of GMI or in any combination of cash and such
shares. The aggregate market value of the shares, if any, used to
pay incentive awards under this plan shall be no greater than the
aggregate amount of cash that otherwise would have been paid in
<PAGE>
lieu of said shares pursuant to the terms of this plan, the market
value per share being the average of the high and low prices for
GMI common stock as quoted on the New York Stock Exchange Composite
Transactions for the day the incentive awards are determined.
Incentive awards will consider individual performance of the
employee. The establishment of an annual incentive award pool or
annual incentive award pools shall not create or imply a promise or
any other obligation of GMI, any of its subsidiaries, or their
divisions, or a right of any individual employee or of the
collective employees of GMI, its subsidiaries, or their divisions.
The plan shall terminate upon the grant of awards under the plan or
a resolution of the Board of Directors of GMI terminating the plan.
The establishment of this plan or the grant of awards hereunder
does not create or imply a promise or any other obligation to
establish the same or a similar plan for any other year or to
continue to grant such awards in the future.
RESPONSIBILITY AND AUTHORITY
The Chief Executive Officer and the Chief Financial Officer of GMI
shall take all such actions, do all such things, make all such
payments and sign and deliver all such documents and instruments as
either or both of them may at any time or from time to time deem
necessary or desirable in order to implement this plan.
EXHIBIT 21.1
GLOBAL MARINE INC. AND SUBSIDIARIES
AS OF FEBRUARY 28, 1998
STATE OR OTHER PERCENT OF VOTING
JURISDICTION OF STOCK OWNED BY
NAME OF COMPANY INCORPORATION IMMEDIATE PARENT
Global Marine Inc. Delaware -
Applied Drilling
Technology Inc. Texas 100%
Arctic Systems Ltd. Canada 100%
Campeche Drilling Services Inc. Delaware 100%
Challenger Minerals Inc. California 100%
Global Marine Arctic Ltd. Canada 100%
Global Marine Drilling Company California 100%
Global Dolphin Drilling Company India 40%
Private Limited
Global Marine Caribbean, Inc. California 100%
Global Marine Development Inc. California 100%
Global Marine do Brasil
Perfuracoes Ltda. Brazil 50% (1)
Global Marine Baltic Inc. Delaware 100%
Global Marine International Services
Corporation Bahamas 89.3% (2)
Global Marine B.V. The Netherlands 100%
Glomar International (Canada) Nova Scotia 100%
Drilling Company
Global Marine North Sea Limited Bahamas 100%
Global Marine Overseas Limited Bahamas 100%
Global Marine West Africa Bahamas 100%
Drilling Company Limited
Global Marine South America LLC Delaware 100%
Global Marine U.K. Limited Scotland 100%
Global Offshore Drilling Ltd. Nigeria 60%
Glomar International S.A.R.L. France 100%
Global Marine Capital Investments Inc. Delaware 100%
Global Marine Beaufort Sea Inc. Delaware 100%
Global Marine Corporate Services Inc. California 100%
Global Marine de Venezuela Inc. Delaware 100%
Global Marine Drilling (Malaysia)
Sdn. Bhd. Malaysia 100%
Global Marine Integrated Services
- International Inc. Delaware 100%
Intermarine Services Inc. Texas 100%
Marican Offshore Drilling Services, Inc. Canada 100%
Turnkey Ventures de Mexico Inc. Delaware 100%
___________________________
(1) The remaining 50% of the voting stock is owned directly by Global Marine
Inc.
(2) The remaining 10.7% of the voting stock is owned by Global Marine Drilling
Company.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference of our report dated March 11,
1998 on our audits of the consolidated financial statements and our report
dated March 11, 1998 on our audits of the financial statement schedule of
Global Marine Inc. and subsidiaries, as of December 31, 1997 and 1996, and
for the years ended December 31, 1997, 1996 and 1995, which reports are
included in this Annual Report on Form 10-K, into (i) the prospectus
constituting part of the Company's Registration Statements on Form S-8
(Registration Nos. 33-32088, 33-40961 and 33-63326), respectively, for the
Global Marine Inc. 1989 Stock Option and Incentive Plan, (ii) the prospectus
constituting part of the Company's Registration Statement on Form S-8
(Registration No. 33-40266) for the Global Marine Savings Incentive Plan,
(iii) the prospectus constituting part of the Company's Registration Statement
on Form S-8 (Registration No. 33-40961) for the Global Marine Inc. 1990
Non-Employee Director Stock Option Plan, (iv) the prospectus constituting part
of the Company's Registration Statement on Form S-8 (Registration No. 33-57691)
for the Global Marine Inc. 1994 Non-Employee Stock Option and Incentive Plan,
and (v) the prospectus constituting part of the Company's Registration
Statement on Form S-3 (Registration No. 33-58577) for the proposed offering of
up to $75,000,000 of debt securities, preferred stock and/or common stock.
/s/ Coopers & Lybrand L.L.P.
Houston, Texas
March 13, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated balance sheet of Global Marine Inc. and subsidiaries as
of 12-31-97 and the related condensed consolidated statement of operations for
the twelve months ended 12-31-97, and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 78,900
<SECURITIES> 1,700
<RECEIVABLES> 155,000
<ALLOWANCES> 2,800
<INVENTORY> 0
<CURRENT-ASSETS> 327,700
<PP&E> 1,304,100
<DEPRECIATION> 305,100
<TOTAL-ASSETS> 1,421,900
<CURRENT-LIABILITIES> 183,500
<BONDS> 299,400
0
0
<COMMON> 17,200
<OTHER-SE> 788,400
<TOTAL-LIABILITY-AND-EQUITY> 1,421,900
<SALES> 7,200
<TOTAL-REVENUES> 1,067,100
<CGS> 5,100
<TOTAL-COSTS> 741,500
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,700
<INCOME-PRETAX> 294,000
<INCOME-TAX> (21,100)
<INCOME-CONTINUING> 315,100
<DISCONTINUED> 0
<EXTRAORDINARY> (4,500)
<CHANGES> 0
<NET-INCOME> 310,600
<EPS-PRIMARY> 1.81
<EPS-DILUTED> 1.76
</TABLE>
